Doosan Heavy Industries & Construction Co., Ltd. and …en).pdf · Doosan Heavy Industries & Construction Co., Ltd. and its subsidiaries Consolidated statements of comprehensive income

Doosan Heavy Industries & Construction Co., Ltd. and its subsidiaries Consolidated Financial Statements and Independent Auditor’s Report

As at and For the Years Ended

December 31, 2015 and 2014

Doosan Heavy Industries & Construction Co., Ltd.

Contents

I. Independent Auditor’s Report

II. Consolidated Financial Statements

Consolidated Statements of Financial Position ----------------------------------------- 4

Consolidated Statements of Profit or Loss ----------------------------------------------- 6

Consolidated Statements of Comprehensive Income or Loss ------------------------ 7

Consolidated Statements of Changes in Equity ---------------------------------------- 8

Consolidated Statements of Cash Flows ------------------------------------------------- 10

Notes ----------------------------------------------------------------------------------------------

------------------------------------------------------------ 1

12

Independent auditors’ report

The Board of Directors and Stockholders Doosan Heavy Industries & Construction Co., Ltd. We have audited the accompanying consolidated financial statements of Doosan Heavy Industries & Construction Co., Ltd. (the “Company”) and its subsidiaries (collectively, the “Group”), which comprise the consolidated statements of financial position as at December 31, 2015 and 2014, and the consolidated statements of profit or loss, consolidated statements of comprehensive income or loss, consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards (KIFRS), and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

A member firm of Ernst & Young Global Limited

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Doosan Heavy Industries & Construction Co., Ltd. and its subsidiaries as at December 31, 2015 and 2014, and their consolidated financial performance and cash flows for the years then ended in accordance with Korean International Financial Reporting Standards.

March 17, 2016

This audit report is effective as at March 17, 2016, the independent auditors’ report date. Accordingly, certain material subsequent events or circumstances may have occurred during the period from the auditors’ report date to the time this report is used. Such events and circumstances could significantly affect the accompanying consolidated financial statements and may result in modification to this report.

A member firm of Ernst & Young Global Limited


and its subsidiaries

Consolidated financial statements

for the years ended December 31, 2015 and 2014

“The accompanying consolidated financial statements, including all footnotes and disclosures, have been prepared by, and are the responsibility of, the Group.”

Geewon Park

Chief Executive Officer


3

(Korean won in units)

AssetsCurrent assets:

Cash and cash equivalents 4, 5, 10 \ 1,893,007,747,878 \ 1,297,560,213,962 Short-term financial instruments 4, 5, 10, 34 475,822,932,100 591,481,515,302 Short-term investments

in securities 4, 6, 10 440,994,129 31,385,470,088 Trade receivables, net 4, 7, 10, 26, 34, 35 2,512,793,814,167 2,564,431,426,660 Due from customers

for contract work, net 7, 26 1,898,305,160,818 2,035,389,942,663 Other receivables, net 4, 7, 10, 35 389,866,374,113 331,073,026,441 Prepayments 7 617,000,416,576 623,678,714,210 Prepaid expenses 80,051,592,909 97,716,964,385 Short-term loans, net 4, 7, 10, 35 178,384,058,498 541,593,602,039 Derivative financial assets 4, 9, 10 24,409,004,032 37,340,410,136 Firm commitment assets 9 111,500,155,075 64,068,051,449 Inventories, net 8, 34 2,196,491,764,508 2,331,909,520,735 Other current assets 4, 7, 10 227,111,159,002 264,712,483,766 Non-current assets classified

as held-for-sale 37 119,220,470,226 - Total current assets 10,724,405,644,031 10,812,341,341,836

Non-current assets:Long-term financial instruments 4, 5, 10 77,402,476,564 84,712,208,686 Long-term investments

in securities 4, 6, 10, 34 190,420,094,063 187,942,074,247 Share of investments in

associates and joint ventures 11, 34 62,411,138,388 226,744,904,296 Long-term loans, net 4, 7, 10, 35 1,019,229,605,248 719,430,932,517 Property, plant and equipment, net 12, 34 7,206,578,365,565 7,190,139,774,839 Intangible assets, net 13 6,657,774,324,948 6,863,345,310,432 Investment properties 14, 34 30,516,385,496 68,163,327,038 Derivative financial assets 4, 9, 10 63,996,129,207 27,913,927,369 Firm commitment assets 9 73,771,115,605 56,626,716,041 Guarantee deposits, net 4, 5, 7, 10 253,322,937,601 309,024,141,234 Deferred tax assets 31 782,988,943,041 944,406,898,458 Other non-current assets 4, 7, 10 117,323,450,501 61,114,955,310

Total non-current assets 16,535,734,966,227 16,739,565,170,467 Total assets \ 27,260,140,610,258 \ 27,551,906,512,303

(Continued)

as at December 31, 2015, 2014

Doosan Heavy Industries & Construction Co., Ltd. and its subsidiariesConsolidated statements of financial position

December 31, 2015 December 31, 2014Notes

4


Liabilities and equityCurrent liabilities:

Trade payables 4, 10, 35 \ 2,259,960,866,728 \ 2,691,130,566,041 Short-term borrowings 4, 10, 15, 34 3,943,165,035,852 2,967,464,808,128 Asset-backed loans 4, 10, 15 394,044,438,739 397,347,705,208 Other payables 4, 10, 35 797,731,063,373 720,622,823,183 Advanced received 346,939,985,983 361,265,911,412 Due to customers for contract work 26 1,200,598,386,238 1,120,201,735,582 Withholdings 84,990,443,174 116,998,812,277 Accrued expenses 4, 10 579,421,166,491 488,643,525,511 Income tax payable 35,923,644,791 69,207,517,934 Current portion of long-term debt 4, 10, 15, 34 2,252,663,857,555 1,631,163,514,293 Derivative financial liabilities 9, 10 217,439,689,022 185,685,205,347 Firm commitment liabilities 9 16,325,825,501 65,365,984,651 Other provisions 17 130,417,938,027 137,223,875,500 Other current liabilities 4, 10 195,873,537,768 179,750,645,637

Total current liabilities 12,455,495,879,242 11,132,072,630,704

Non-current liabilities:Debentures 4, 10, 15, 34 2,547,984,215,918 3,009,799,381,248 Long-term borrowings 4, 10, 15, 34 3,282,290,330,730 3,597,626,371,249 Long-term asset-backed loans 4, 10, 15 150,408,282,978 42,677,714,962 Long-term other payables 4, 10 41,882,360,478 51,247,058,484 Employee benefits liability 16 900,192,936,968 1,020,609,311,678 Deposits received 4, 10 152,617,695,614 223,675,032,387 Derivative financial liabilities 9, 10 147,638,954,643 128,730,391,781 Firm commitment liabilities 9 28,734,919,118 26,648,783,925 Deferred tax liabilities 31 118,224,240,213 82,460,285,676 Other provisions 17 244,242,092,508 237,747,776,849 Other non-current liabilities 4, 10 164,321,029,716 321,610,053,428

Total non-current liabilities 7,778,537,058,884 8,742,832,161,667 Total liabilities 20,234,032,938,126 19,874,904,792,371

Equity: Issued capital 1, 18 596,808,980,000 596,808,980,000 Capital surplus 19 1,563,917,672,526 1,828,284,636,585 Other components of equity 20 (105,157,160,978) (101,795,674,821)Accumulated other comprehensive

income 6, 9, 10, 21 512,011,506,902 220,918,859,061 Retained earnings 22 1,013,088,220,397 2,115,202,768,057

Equity attributable to equity holders of the parent 3,580,669,218,847 4,659,419,568,882 Hybrid equity instruments 23 841,695,963,991 508,259,603,649 Other non-controlling interests 23 2,603,742,489,294 2,509,322,547,401

Non-controlling interests 3,445,438,453,285 3,017,582,151,050 Total equity 7,026,107,672,132 7,677,001,719,932 Total liabilities and equity \ 27,260,140,610,258 \ 27,551,906,512,303

The accompanying notes are an integral part of the consolidated financial statements.

December 31, 2015Notes

Doosan Heavy Industries & Construction Co., Ltd. and its subsidiariesConsolidated statements of financial position as at December 31, 2015, 2014 (cont'd)

December 31, 2014

5

Doosan Heavy Industries & Construction Co., Ltd. and its subsidiariesConsolidated statements of profit or lossfor the years ended December 31, 2015 and 2014(Korean won in units)

NotesRevenue 24, 25, 26, 35 \ 16,204,318,150,763 \ 17,971,644,255,839Cost of sales 26, 27, 35 13,646,660,617,300 14,903,359,919,907Gross profit 2,557,657,533,463 3,068,284,335,932Selling and administrative expenses 10, 27, 28 2,495,591,387,773 2,190,177,562,750Operating profit 24 62,066,145,690 878,106,773,182Finance income 10, 29 1,236,190,085,496 922,501,649,469Finance costs 10, 29 1,955,240,535,134 1,774,300,682,583Other non-operating income 10, 30 95,823,099,160 127,761,681,063Other non-operating expenses 10, 30 915,042,029,100 279,269,541,575Share of loss in associates and

joint ventures 11 (81,659,482,860) (79,859,494,062)Loss before tax from

continuing operations (1,557,862,716,748) (205,059,614,506)Income tax expense (benefit) 31 167,893,229,951 (104,804,644,013)Loss from continuing operations 24 (1,725,755,946,699) (100,254,970,493)Profit (loss) from 38

discontinued operations (25,143,382,810) 14,779,623,313 Loss for the year (1,750,899,329,509) (85,475,347,180)Attributable to:

Equity holders of the parent (1,038,543,220,644) (94,675,179,547)Non-controlling interests (712,356,108,865) 9,199,832,367

\ (1,750,899,329,509) \ (85,475,347,180)

Earnings (loss) per share:- Basic, loss for the year

attributable to ordinary equity holders of the parent 32 \ (10,631) \ (1,082)

Loss for the yearfrom continuing operations (10,427) (1,209)

Profit (loss) for the yearfrom discontinued operations (204) 127

- Diluted, loss for the yearattributable to ordinary equityholders of the parent 32 \ (10,631) \ (1,082)

Loss for the yearfrom continuing operations (10,427) (1,209)

Profit (loss) for the yearfrom discontinued operations (204) 127

(Continued)

20142015

6

Doosan Heavy Industries & Construction Co., Ltd. and its subsidiariesConsolidated statements of comprehensive income or lossfor the years ended December 31, 2015 and 2014(Korean won in units)

NotesLoss for the year \ (1,750,899,329,509) \ (85,475,347,180)

Other comprehensive income (loss) 319,962,397,817 (339,645,498,514)

Items that will not be reclassified to profit or loss in subsequent periods:

Remeasurement of the net defined benefit liabilities 16 18,841,106,569 (110,461,283,972)

Net gain (loss) on revaluation of land 12 359,747,810,598 (192,140,659)378,588,917,167 (110,653,424,631)

Items that may be reclassified to profit or loss in subsequent periods:

Net change in unrealizedfair value of available-for-salefinancial assets 6,10 (3,104,626,549) 1,496,857,115

Effective portion of changes in fair value of cash flow hedges 9,10 12,063,776,264 (3,822,332,135)

Equity adjustments in equity method (debit) 11 1,340,919,348 (2,626,931)

Net loss on translation offoreign operations (68,926,588,413) (226,663,971,932)

(58,626,519,350) (228,992,073,883)

Total comprehensive loss, net of tax \ (1,430,936,931,692) \ (425,120,845,694)

Attributable to:Equity holders of the parent (726,791,363,904) (277,122,175,008)Non-controlling interests (704,145,567,788) (147,998,670,686)

\ (1,430,936,931,692) \ (425,120,845,694)


2015 2014

7

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9


NotesOperating activities:

Cash generated from operating activities: 36 Loss for the year \ (1,750,899,329,509) \ (85,475,347,180)Adjustments 2,796,807,824,518 1,830,501,922,424 Working capital adjustments (479,967,906,093) (345,912,328,229)

Interest received 41,862,736,122 55,528,847,058 Interest paid (576,553,756,935) (618,203,026,965)Dividends received 1,716,215,002 1,558,270,393 Income taxes paid (107,337,929,391) (234,189,415,047)Net cash flows

provided by (used in) operating activities (74,372,146,286) 603,808,922,454

Investing activities:Proceeds from disposal of short-term

financial instruments 202,203,565,224 288,798,834,598 Proceeds from disposal of short-term

investments in securities 80,499,361,714 73,071,978,911 Collection of short-term loans 103,894,172,141 181,531,790,623 Proceeds from disposal of

long-term financial instruments 11,158,450,670 4,431,747,297 Proceeds from disposal of long-term

investment in securities 15,745,912,830 6,911,704,798 Collection of long-term loans 132,493,369,838 78,556,516,994 Proceeds from disposal of investments in

associates and joint ventures 5,999,506,443 6,474,033,289 Proceeds from disposal of investments in

subsidiaries 126,667,468,493 - Proceeds from disposal of

property, plant and equipment 30,891,342,577 14,126,457,253 Proceeds from disposal of intangible assets 2,863,652,101 3,555,188,974 Proceeds from disposal of investment property 1,577,382,829 1,486,728,579 Proceeds from disposal of non-current assets

classified as held-for-sale - 9,665,880,000

(Continued)

Doosan Heavy Industries & Construction Co., Ltd. and its subsidiaries

for the years ended December 31, 2015 and 2014

20142015

Consolidated statements of cash flows

10


NotesProceeds from transfer business 128,317,226,465 - Acquisition of short-term financial instruments (79,222,803,135) (95,207,452,344)Acquisition of short-term investments in securities (3,955,604,933) (65,228,155,478)Increase in short-term loans (155,702,429,216) (104,582,725,328)Acquisition of long-term financial instruments (56,094,727,889) (1,117,551,401)Acquisition of long-term investment in securities (12,416,609,062) (20,269,579,917)Increase in long-term loans (212,259,140,998) (293,311,264,050)

Acquisition of investments in associates and joint ventures (1,108,000,000) (268,400,000)

Acquisition of investments in subsidiaries 39 (54,940,467,860) - Acquisition of property, plant and equipment (388,747,759,099) (372,668,244,664)Acquisition of intangible assets (253,851,630,523) (260,695,999,999)Acquisition of investment property (3,727,430,450) - Net cash flow used in investing activities (379,715,191,840) (544,738,511,865)

Financing activities:Net increase in short-term borrowings \ 1,172,995,994,644 \ 580,935,632,821 Proceeds from short-term bonds - 30,000,000,000 Proceeds from asset-backed loans 1,294,518,541,269 1,028,000,000,000 Issuance of debentures 710,193,878,690 649,688,561,247 Proceeds from long-term borrowings 742,556,421,012 2,842,390,469,873 Proceeds from disposal of

treasury shares by subsidiaries - 3,963,729,410 Capital increase by issuing new shares - 372,678,874,818 Capital increase by

issuing new shares of subsidiaries 23 916,677,759,896 - Changes in consolidation scope 1,080,996,843 - Repayment of current portion of long-term debt (1,255,456,228,592) (2,030,330,435,447)Repayment of assets backed loans (1,203,450,000,000) (829,350,000,000)Repayment of debentures (45,694,643,604) (137,771,678,621)Repayment of long-term borrowings (1,094,394,528,323) (1,990,867,314,625)Repayment of financial lease liabilities (660,278,141) - Dividends paid 22 (84,230,535,915) (74,134,313,250)

Dividends paid by subsidiaries (85,494,554,491) (28,418,000,000)Acquisition of additional shares in subsidiaries - (4,763,339,000)Acquisition of treasury shares by subsidiaries (9,997,743,330) (85,674,337,740)Net cash flows provided by financing activities 1,058,645,079,958 326,347,849,486

Net foreign exchange difference (9,110,207,916) (30,619,708,487)Net increase in cash and cash equivalents 595,447,533,916 354,798,551,588 Cash and cash equivalents as at January 1 1,297,560,213,962 942,761,662,374 Cash and cash equivalents as at December 31 \ 1,893,007,747,878 \ 1,297,560,213,962


2015 2014

Doosan Heavy Industries & Construction Co., Ltd. and its subsidiariesConsolidated statements of cash flows for the years ended December 31, 2015 and 2014 (cont'd)

11

Doosan Heavy Industries & Construction Co., Ltd. and its subsidiaries Notes to the consolidated financial statements December 31, 2015 and 2014

1. Corporate information

1-1. General Doosan Heavy Industries & Construction Co., Ltd. (the “Company”) was incorporated on September 20, 1962, with its headquarters in Changwon, Korea. Since its incorporation, the Company has grown to become one of the leading global manufacturers of advanced power generation equipment. The Company engages in manufacturing of a range of thermal and nuclear power generation equipment including boilers, turbines and generators. It also engages in engineering, procurement and construction of thermal power plants. The Company also supplies seawater desalination and water treatment solutions to its clients. In addition to the domestic production facilities in Changwon, the Company operates a global network of production facilities in the United Kingdom, the Czech Republic, India, Romania and Vietnam.

The Company has been listed on the Korea Exchange since October 25, 2000 and its major stockholder as at December 31, 2015 is Doosan Corp. holding an equity ownership of 36.82%.

1-2. Subsidiaries The Company’s subsidiaries as at December 31, 2015 are as follows:

Ownership interest held by the parent (%) (*1)

Reporting date (*2) Subsidiaries

Principal business activity

Country of domicile 2015 2014

Doosan Asset Management Company Co., Ltd.

Property development Korea 100 100 Dec. 31

Doosan Heavy Industries Vietnam Co., Ltd.

Manufacturing of machinery &

equipment Vietnam 100 100 "

HF Controls Corp. Manufacturing USA 100 100 " Doosan HF Controls Asia Co.,Ltd. Manufacturing Korea 100 -

" PT. Doosan Heavy Industries

Indonesia Manufacturing Indonesia 55 55 "

Doosan Heavy Industries Japan Corp. Sales Japan 100 100 "

S.C Doosan IMGB S.A. Manufacturing Romania 99.85 99.85 "

Doosan Enpure Ltd. Engineering &

Services UK 100 100 "

Doosan Construction Site Solutions Vietnam Co., Ltd.

Equipment lease Vietnam 100 100 "

Doosan Power Systems India Private Ltd.

Engineering & Services India 100 100 Mar. 31

Doosan Heavy Industries Muscat LLC Manufacturing Oman 70 -

Dec. 31

Doosan Power Systems Arabia Manufacturing Saudi Arabia 51 - "

Doosan Heavy Industries America Holdings Inc.

Holdings Company USA 100 100 "

Doosan Hydro Technology Inc. Manufacturing USA 100 100 " Doosan Engineering & Services

LLC Engineering &

Services USA 100 100 "

Doosan Heavy Industries America Corp. Sales USA 100 100 "

Doosan ATS America, LLC

Engineering & Services USA 100 100 "

Doosan Skoda Power s.r.o Manufacturing Czech 100 100 "

Skoda Power Private Ltd. Engineering India 100 100 Mar. 31 Doosan Power Systems Pension Trustee Company Ltd.

Professional services

UK 100 100

Dec. 31 Doosan Power

Systems Overseas Investments Ltd. Holdings

Company UK 100 100 " Doosan Babcock Ltd.

Engineering & Services UK 100 100 "

Doosan Power Systems Holdings Ltd.

Holdings Company UK 100 100 "

12


1. Corporate information (cont’d)

1-2. Subsidiaries (cont’d)

Ownership interest held by the

parent (%) (*1)

Subsidiaries

Principal business activity

Country of domicile 2015 2014

Reporting date (*2)

Doosan Power Systems Europe

Limited GmbH Engineering & Services Germany 100 100 Dec. 31

Doosan Power Systems Americas LLC Engineering &

Services, Sales USA 100 100 " Doosan Lentjes

UK Limited Professional

services UK 100 100 " Doosan

Lentjes GmbH Engineering &

Services Germany 99.04 99.04 " Doosan Power Systems S.A (“DPS S.A.”) Holdings

Company Luxem-bourg 100 100 " Doosan Babcock Energy Technologies (Shanghai) Ltd. Engineering &

Services China 100 100 " Doosan Babcock

Energy Services (Overseas) Ltd. Engineering &

Services UK 100 100 " Doosan Babcock

Energy Polska Sp z.o.o Engineering &

Services Poland 98.91 98.91 " Doosan Babcock

Energy Germany GmbH Engineering &

Services Germany 100 100 " Doosan Lentjes Czech s.r.o

Professional services Czech 100 100 "

AE&E Lentjes Belgie N.V. Dormant Belgium 100 100 " Doosan Power System (Scotland) Ltd. Partnership Real estate UK 100 100 " Doosan Babcock General Maintenance Services LLC (*3) Professional

services UAE 49 49 "

Doosan Babcock WLL(*3) Professional

services Qatar 49 49 "

KDPP 1st Co.,Ltd. (*4) Asset Securitization Korea - - "

Happy Tomorrow 20th Co., Ltd.(*4) Asset

Securitization Korea - - "

Doosan Infracore Co., Ltd. (“DI”) and subsidiaries (*5)


equipment Korea, etc 36.4 36.4 "

Doosan Engineering & Construction Co., Ltd. (“DEC”) and subsidiaries

Construction and

manufacturing Korea, etc 80.01 84.29 "

Doosan Engine Co., Ltd. (“DE”) and subsidiaries

(*5)


equipment Korea, etc 42.66 42.66 "

13



1-2. Subsidiaries (cont’d)

(*1) The ownership percentage represents the equity interest held by the Company (the parent) in each respective subsidiary, except Doosan Heavy Industries Vietnam Co., Ltd. of which 24.76% of equity interest are owned by Doosan Engineering & Construction Co., Ltd. (DEC). Overall, the Group has an effective ownership interest of 95.05% of the Doosan Heavy Industries Vietnam Co., Ltd.

(*2) Where the reporting date of subsidiaries are not consistent with that of the Company based on local laws, adjustments have been made to conform with the Company’s reporting date for preparation of consolidated financial statements.

(*3) Although the Company’s ownership interest in the investee is less than a majority, the Company assessed that it exercises control over the investee based on the voting rights in the equity’s board of directors.

(*4) The Company assessed that it exercises control over the special purpose entity as the entity’s activities are substantively governed by the Company.

(*5) Although the Company’s ownership interest in the investee is less than a majority, the Company assessed that it exercises control over the investee based on its holdings relative to the size and dispersion of ownership interests held by other equity holders and the voting patterns in previous shareholders’ meetings.

1-3. Main subsidiary’s financial information Summarized financial information of main subsidiaries as at and for the year ended December 31, 2015 is as follows (Korean won in millions):

Subsidiary Assets Liabilities Sales Profit (loss) for

the year

Total comprehensive income (loss)

Doosan Heavy Industries Vietnam Co., Ltd.

￦ 423,325 ￦ 355,464 ￦ 229,133 ￦ (12,268)

￦ (12,268)HF Controls Corp. 22,597 8,550 15,505 561 561 Doosan Heavy

Industries Japan Corp. 30,932 28,221 2,985 220 220 S.C Doosan IMGB S.A. 154,640 119,357 86,543 (2,968) (2,968)

Doosan Construction Site Solutions

Vietnam Co., Ltd. 13,411 1,257 4,914 40 40 Doosan Power

Systems India Private Ltd. 443,768 343,835 314,135 (32,650) (30,350)Doosan Heavy Industries America

Holdings Inc. 190,987 34,013 - 2,774 2,774 Doosan Hydro Technology Inc. 26,013 49,369 25,841 (1,143) (1,143)Doosan Heavy

Industries America Corp. 22,383 14,293 3,711 (48,357) (48,357)

Doosan Skoda Power s.r.o 613,181 204,361 346,015 59,345 67,018

Doosan Power Systems Overseas

Investments Ltd. 89,062 101,333 - (688) (688)

14



1-3. Main subsidiary’s financial information (cont’d)

Subsidiary Assets Liabilities Sales Profit (loss) for

the year


Doosan Babcock Ltd. ￦ 1,771,316 ￦ 932,823 ￦ 791,372 ￦ (10,888) ￦ 4,007

Doosan Power Systems Holdings Ltd. 154,308 - - 8,931 8,931 Doosan Power Systems Europe Limited GmbH 174,089 114,344 - (1,518) (1,518)Doosan Lentjes GmbH 87,989 58,511 37,631 (13,475) (14,522)DPS S.A. 1,449,761 1,015,383 752 (42,785) (42,785)Doosan Babcock Energy Polska

Sp z.o.o. 25,523 13,877 46,134 1,913 2,026 Doosan Power

Systems (Scotland) Ltd. Partnership

35,272 1,699 2,227 (1,295)

3,721

DI and its subsidiaries 11,383,173 8,280,217 7,212,985 (859,505) (842,846)

DEC and its subsidiaries 4,225,712 2,811,405 1,805,357 (520,746) (523,698)DE and

its subsidiaries 1,406,042 831,369 693,645 (125,442) (126,102)

1-4. Significant non-controlling interests Financial information of subsidiaries attributable to significant non-controlling interests is as follows (Korean won in millions):

Subsidiary Net loss attributable to

non-controlling interestsCumulative non-controlling

interests Dividends allocated to non-

controlling interests Doosan Infracore Co., Ltd.

and subsidiaries ￦ (525,898) ￦ 2,260,213 ￦ (32,710)Doosan Engineering &Construction Co., Ltd.

and subsidiaries (109,980) 624,806 (52,785)Doosan Engine Co., Ltd.

and subsidiaries. (76,062) 251,187 -

1-5. Cash flow information for subsidiaries with significant non-controlling interests

Cash flow information for subsidiaries with significant non-controlling interests is as follows (Korean won in millions):

2015

DI and subsidiaries

DEC and subsidiaries

DE and subsidiaries

Ⅰ. Net cash flows provided by (used in) operating activities ￦ 236,685 ￦ 215,008 ￦ (44,145)

Ⅱ. Net cash flow provided by (used in) investing activities (96,938) 97,707 14,886

Ⅲ. Net cash flows provided (used in) by financing activities 82,007 (372,211) 29,606

Ⅳ. Net foreign exchange difference (24,704) 202 136 Ⅴ. Net increase (decrease) in cash and cash

equivalents (Ⅰ+Ⅱ+Ⅲ+Ⅳ) 197,050 (59,294) 483 Ⅵ. Cash and cash equivalents as at January 1 362,953 167,498 44,999 Ⅶ. Cash and cash equivalents as at December 31 ￦ 560,003 ￦ 108,204 ￦ 45,482

15



1-6. Changes in the scope of consolidation

Changes in the scope of consolidation for the year ended December 31, 2015 are as follows:

Subsidiary Description Reason

Doosan Infracore Bobcat Korea Co., Ltd. Incorporation of new connectionsEstablishment of new corporation

Doosan Infracore Construction Equipment India Priavte Ltd. Incorporation of new connections

Establishment of new corporation

Doosan Bobcat Chile Compact SpA Incorporation of new connectionsEstablishment of new corporation

Doosan Engine PNG Co., Ltd. Incorporation of new connectionsEstablishment of new corporation

Doosan (China) Financial Leasing Corp. Incorporation of new connections Acquisition control

Doosan HF Controls Asia Co., Ltd. Incorporation of new connectionsEstablishment of new corporation

Doosan Heavy Industries Muscat LLC Incorporation of new connectionsEstablishment of new corporation

Doosan Power Systems Arabia Incorporation of new connectionsEstablishment of new corporation

KDPP 1st Co., Ltd. Incorporation of new connectionsEstablishment of new corporation

Happy Tomorrow 20th Co., Ltd. Incorporation of new connectionsEstablishment of new corporation

Doosan Cuvex 1st Securitization Specialty LLC Incorporation of new connections (*1) SD 1st Co., Ltd. Incorporation of new connections (*1) PINETREE CITY 1st Co,.Ltd. Incorporation of new connections (*1) DS Changwon 1st LLC Incorporation of new connections (*1) SD 5th Co., Ltd. Incorporation of new connections (*1) DS Public 1st Co., Ltd. Incorporation of new connections (*1) DS Public 2nd Co., Ltd. Incorporation of new connections (*1) DS-Bliss 1st Co., Ltd. Incorporation of new connections (*1) The DSWAY 1st Co., Ltd. Incorporation of new connections (*1) Doosan E&C 2nd Co., Ltd. Incorporation of new connections (*1) Montabert Excluded from consolidation Disposal stock Doosan Power Systems Czech Investment a.s. Excluded from consolidation Liquidation

(*1) Special purpose entities (“SPE”) classified as unconsolidated structured entities in 2014 were included in consolidation in 2015. The Group assessed that the financial impact of their reclassification to consolidation was not material to the consolidated financial statements.

During the year, DEC, a subsidiary, entered into a treasury share trust contract related to acquisition of treasury shares amounting to ￦10,000 million. Accordingly, the treasury share trust was included in consolidation.

16


2. Summary of significant accounting policies

2-1. Basis of preparation The Group prepares statutory financial statements in the Korean language in accordance with Korean International Financial Reporting Standards (KIFRS) enacted by the Corporate External Audit Law. The accompanying consolidated financial statements have been prepared on a historical cost basis, except for land and others which have been measured at fair value, and are presented in Korean won in units except for the accompanying notes to the consolidated financial statements.

The accompanying consolidated financial statements have been translated into English from the Korean language financial statements. In the event of any differences in interpreting the consolidated financial statements or the independent auditors’ report thereon, the Korean version, which is used for regulatory reporting purposes, shall prevail.

2-2. Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at December 31, 2015. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: Power over the investee (i.e. existing rights that give it the current ability to direct the relevant

activities of the investee) Exposure, or rights, to variable returns from its involvement with the investee, and The ability to use its power over the investee to affect its returns

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: The contractual arrangement with the other vote holders of the investee Rights arising from other contractual arrangements The Group’s voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of profit or loss and the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) or loss are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: Derecognizes the assets (including goodwill) and liabilities of the subsidiary Derecognizes the carrying amount of any non-controlling interests Derecognizes the cumulative translation differences recorded in equity Recognizes the fair value of the consideration received Recognizes the fair value of any investment retained Recognizes any surplus or deficit in profit or loss Reclassifies the parent’s share of components previously recognized in OCI to profit or loss or

retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities

17


2. Summary of significant accounting policies (cont’d)

2-3. New and amended standards The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended December 31, 2014, except for the adoption of new standards, interpretations and amendments as at January 1, 2015, noted below. Amendments to KIFRS 1019 Defined Benefit Plans: Employee Contributions KIFRS 1019 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognize such contributions as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service. KIFRS 1102 Share-based Payment This improvement is applied prospectively and clarifies various issues relating to the definitions of performance and service conditions which are vesting conditions.

Performance conditions must include service conditions; Performance goals must be met during the period when services are rendered; Performance goals may be related to other activities of the Group; Performance conditions shall be market-based or non-market-based; If rendering services is suspended without any reasonable cause, performance conditions are not

considered to be met.

KIFRS 1103 Business Combinations The amendment is applied prospectively and clarifies that all contingent consideration arrangements classified as liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of KIFRS 1039. The amendment is applied prospectively and clarifies for the scope exceptions within KIFRS 1103 that: Joint arrangements, not just joint ventures, are outside the scope of KIFRS 1103 This scope exception applies only to the accounting in the financial statements of the joint arrangement

itself.

KIFRS 1108 Operating Segments The amendments are applied retrospectively and clarify that: An entity must disclose the judgments made by management in applying the aggregation criteria in

paragraph 12 of KIFRS 1108, including a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are ‘similar’

The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities

The Group has not applied the aggregation criteria in KIFRS1108.12. The Group has presented the reconciliation of segment assets to total assets in previous periods as the reconciliation is reported to the chief operating decision maker for the purpose of decision making.

18



2-3. New and amended standards (cont’d)

KIFRS 1016 Property, Plant and Equipment and KIFRS 1038 Intangible Assets The amendment is applied retrospectively and clarifies in KIFRS 1016 and KIFRS 1038 that the asset may be revalued by reference to observable data by either adjusting the gross carrying amount of the asset to market value or by determining the market value of the carrying value and adjusting the gross carrying amount proportionately so that the resulting carrying amount equals the market value. In addition, the accumulated depreciation or amortization is the difference between the gross and carrying amounts of the asset.

KIFRS 1024 Related Party Disclosures The amendment is applied retrospectively and clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services.

KIFRS 1113 Fair Value Measurement The amendment is applied prospectively and clarifies that the portfolio exception in KIFRS 1113 can be applied not only to financial assets and financial liabilities, but also to other contracts within the scope of KIFRS 1039.

KIFRS 1040 Investment Property The description of ancillary services in KIFRS 1040 differentiates between investment property and owner-occupied property (i.e., property, plant and equipment). The amendment is applied prospectively and clarifies that KIFRS 1103, and not the description of ancillary services in KIFRS 1040, is used to determine if the transaction is the purchase of an asset or a business combination. In previous periods, the Group has relied on KIFRS 1103, not KIFRS 1040, in determining whether an acquisition is of an asset or is a business acquisition.

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

19


2. Summary of significant accounting policies(cont’d)

2-4. Investment in associates and joint ventures An associate is an entity over which the Group has significant influence, and which is neither a subsidiary nor an investment in a joint venture and the Group generally holds, directly or indirectly through subsidiaries, between 20% and 50% of the voting power of the entity. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The Group’s investments in its associate and joint venture accounted for using the equity method. Under the equity method, the investment in an associate or a joint venture is initially recognized at cost. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment. After acquisition, the Group's share of the profit or loss and other comprehensive income or loss of the associates and jointly controlled entities are recognized as profit or loss and other comprehensive income or loss and the Group's share of the changes in retained earnings of the associates and joint ventures are recognized as retained earnings. When the Group's share of losses of an associates and joint ventures exceeds the Group's interest in those entities (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate), the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associates and joint ventures. Unrealized gains from transactions between the Group and its associates and joint ventures are eliminated up to the interests in those entities. Unrealized losses are also eliminated unless evidence of impairment in assets transferred is provided. When necessary, the Group may revise associates’ and joint ventures’ financial statements, to apply consistent accounting policies as the Group, prior to applying the equity method of accounting for its investments in the associates and joint ventures. For overseas investees whose financial statements are prepared in foreign currencies, the equity method of accounting is applied after assets and liabilities are translated in accordance with the accounting treatments for the translation of the financial statements of overseas’ subsidiaries for consolidated financial statements. The Group’s proportionate share of the difference between assets net of liabilities and equity after translating into Korean Won is accounted for as “increase (decrease) in equity adjustments in equity method investments” included in accumulated other comprehensive income (loss).

20



2-5. Foreign currency translation

Functional currency and presentation currency The Group’s financial statements are presented in the currency of the primary economic environment in which it operates (its functional currency). The functional currency and the presentation currency for the consolidated financial statements of the Group are Korean won.

Transactions and balances Transactions in currencies other than the entity’s functional currency are recognized at the rates of exchange prevailing at the dates of the transactions. Foreign currency gain (loss) from settlements of foreign currency transactions or translation of monetary items denominated in foreign currencies are recognized in profit or loss whereas the gain (loss) from qualified cash flow hedge and net investment hedge for foreign operations is deferred as an equity item.

Group companies For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations having functional currencies different from the Group’s are translated in presentation currency of the Group using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income or loss and accumulated in equity (attributed to non-controlling interests as appropriate).

Exchange differences from the net investment in the foreign operation, and borrowings and other foreign currency instruments designated as hedging instrument for the net investment in the foreign operation are recognized in other comprehensive income or loss. On the disposal of a foreign operation resulting in loss of control, all of the accumulated exchange differences in respect of that operation are reclassified to profit or loss. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.

2-6. Cash and cash equivalents Cash and cash equivalents include cash on hand, demand deposits, short-term, highly liquid investments with maturities (or date of redemption) of three months or less upon acquisition. Bank overdraft is classified as short-term borrowings on the consolidated statements of financial position.

2-7. Financial assets

Initial recognition and measurement Financial assets are classified into the following specified categories: ‘financial assets at fair value through profit or loss’, ‘loans and receivables’, ‘available-for-sale (“AFS”) financial assets’, ‘held-to-maturity financial assets’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

1) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets classified as held for trading and financial assets designated at financial assets at fair value through profit or loss upon initial recognition. A financial asset is classified as held for trading financial assets, if it has been acquired principally for the purpose of selling or repurchasing in near term. All derivative assets including an embedded derivative separated from the host contract and accounted for as derivative are classified as held for trading financial assets unless they are designated as effective hedging instruments. These categories of assets are classified as current assets or non-current assets depending on the timing of settlement.

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2-7. Financial assets (cont’d)

2) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables, with maturities of more than 12 months from the end of the reporting period, are classified as non-current assets. Otherwise they are classified as current assets.

3) Available-for-sale financial investments AFS financial investments are non-derivative financial assets that are designated as available for sale or are not classified as loans and receivables, held-to-maturity financial assets or financial assets at fair value through profit or loss. AFS financial investments are classified as non-current assets unless management has intention to sell them within 12 months from the end of the reporting period.

4) Held-to-maturity financial assets Held-to-maturity financial assets are non-derivative financial instruments with fixed or determinable payments and fixed maturity for which the Group has the positive intention and ability to hold to maturity. Held-to-maturity financial assets, with maturities of more than 12 months from the end of the reporting period, are classified as non-current assets. Otherwise they are classified as current assets.

Subsequent measurement Financial assets are generally recognized on the trade date, which is the date the Group becomes a party to a contract to purchase or sale of a financial asset. Except for financial assets at fair value through profit or loss, all financial assets are initially measured at fair value, plus transaction costs. In the case of financial assets at fair value through profit or loss, they are initially measured at fair value and related transaction costs are recognized as expense in the consolidated statement of profit or loss.

Financial assets at fair value through profit or loss and AFS financial investments are subsequently measured at fair value. Loans and receivables and held-to-maturity investments are measured at amortized cost using the effective interest method (“EIR”).

Gains or losses arising from changes in fair value of financial assets at fair value through profit or loss are recognized in the other non-operating income and expense line item in the consolidated statement of profit or loss. Dividends on financial assets at fair value through profit or loss are recognized in the finance income when the Group’s right to receive the dividends is established.

Changes in fair value of monetary and non-monetary financial assets which are classified as AFS financial investments are recognized in other comprehensive income or loss. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the equity in reclassified into other non-operating income and expense in the statement of profit or loss.

Interest from AFS financial investments calculated using the EIR is recognized in finance income in the consolidated statement of profit or loss. Dividends on AFS equity instruments are recognized in the finance income when the Group’s right to receive the dividends is established.

Impairment of financial assets

1) Financial assets carried at amortized cost The Group assesses, at the end of each reporting period, whether there is any objective evidence that a financial asset is impaired. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

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2-7. Financial assets (cont’d) Impairment loss is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (EIR) at initial recognition. The carrying amount of the financial asset is reduced by the impairment loss and the amount of the loss is recognized in profit or loss. The Group measures impairment loss based on fair value of financial assets from observable market data.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed and recognized in profit or loss.

2) Available-for-sale financial investments The Group assesses, at the end of each reporting period, whether there is any objective evidence that a financial asset or group of financial assets is impaired. For equity investments classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. If there is objective evidence of impairment on AFS financial investments, the cumulative loss that has been recognized in other comprehensive income or loss less any impairment loss previously recognized in profit or loss is reclassified from equity to profit or loss. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as AFS are not reversed through profit or loss. Meanwhile, if, in a subsequent period, the fair value of a debt instrument classified as AFS increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through profit or loss.

Derecognition The Group derecognizes a financial asset only when the contractual rights to the cash flows from the financial asset expire, or when it transfers the rights to receive the contractual cash flows in a transaction in which all the risks and rewards of ownership of the financial asset are transferred.

Offsetting of financial instruments Financial assets and financial liabilities are offset as a net amount in the consolidated statement of financial position when the Group has a legally enforceable right to set off the recognized amounts of the assets and liabilities and intends to settle on a net basis, or to realize the assets and the liabilities simultaneously.

2-8. Trade receivables Trade receivables are amounts owed by customer for products and services provided in the ordinary course of business. Receivables expected to be collected within one year are classified as current assets. Otherwise they are classified as non-current assets. Trade receivables are initially measured at fair value and are presented as net of allowance for doubtful accounts, estimated on an individual basis based on past bad debt experience.

2-9. Due from customers for contract work and due to customers for contract work The gross amount due from customers for contract work is the net amount of: (a) costs incurred, plus recognized profit, less (b) the sum of recognized losses and progress billings

for all contracts in progress for which costs are incurred, plus recognized profits (less recognized losses), in excess of progress billings. The costs incurred shall comprise costs that relate directly to the specific contract and costs that are attributable to contract activity in general and can be allocated to the contract, including fixed and variable overhead costs allocated based on the normal level.

If the costs incurred, plus recognized profit (or losses) exceeds progress billings, a due from customer amount is recognized as an asset; and if the progress billing exceeds the cost incurred, plus recognized profit (or losses), a due to customer amount is recognized as a liability.

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2-10. Inventories Inventories are stated at the lower of cost and net realizable value. Cost of inventories includes fixed and variable manufacturing overhead costs which are systematically allocated to inventories by appropriate methods based on each category of inventory. The cost of inventories is determined by the specific identification method for finished goods, work-in-process, and materials in transit, and gross average method for all other inventories.

The Group periodically reviews changes in net realizable value of inventories (current replacement cost for raw materials) due to damage, obsolescence, decline in selling prices and others and recognizes loss on inventory valuation. Loss on inventory valuation is charged to cost of sales when it is ordinary and to other non-operating expense when it is extraordinary. When the circumstances that previously caused inventories to be written down below cost no longer exist and the new market value of inventories subsequently recovers, the valuation loss is reversed to the extent of the original valuation loss and the reversal is deducted from cost of sales.

2-11. Property, plant and equipment Property, plant and equipment is stated at cost less subsequent accumulated depreciation and accumulated impairment losses. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The cost of an item of property, plant and equipment includes expenditure that is directly attributable to the acquisition of the asset including the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent costs incurred to replace part of previously recognized item of property, plant and equipment are added to the carrying amount of an asset, or recognized as a separate asset, if it is probable that future economic benefits associated with the assets will flow into the Group and the cost of an asset can be measured reliably. The carrying amount of what was replaced is derecognized. Routine maintenance and repairs are expensed as incurred. Depreciation of property, plant and equipment is calculated to the cost of each asset less residual value using the straight-line method over the estimated useful lives of the assets as follows:

Useful lives Buildings 10~43 years Structures 5~40 years Machinery 2~20 years Heavy equipment 10 years Vehicles 3~10 years Others 2~14 years

If a part of a property, plant and equipment has a cost that is significant in relation to the total cost property, plant and equipment, it is depreciated separately.

The Group reviews the depreciation method, the estimated useful lives and residual values of property, plant and equipment at the end of each annual reporting period. If expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate. When the carrying amount of property, plant and equipment is higher than the recoverable amount, the carrying amount is adjusted to the recoverable amount and the difference is recognized as an impairment loss. Meanwhile, when the recoverable amount subsequently exceeds the carrying amount of the impaired asset, the excess is recorded as a reversal of impairment loss to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognized. Upon the derecognition of a property, plant and equipment, the difference between the net disposal proceed and carrying amount of the item is recognized in other non-operating income (expense).

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2-11. Property, plant and equipment (cont’d) A revaluation surplus is recorded in OCI and credited to the asset revaluation reserve in equity. However, to the extent that it reverses a revaluation deficit of the same asset previously recognized in profit or loss, the increase is recognized in profit and loss. A revaluation deficit is recognized in the statement of profit or loss, except to the extent that it offsets an existing surplus on the same asset recognized in the asset revaluation reserve.

2-12. Intangible assets Intangible assets are initially measured at cost and are carried at cost less accumulated amortization and accumulated impairment losses. Subsequent expenditure on an intangible asset is capitalized only when it is probable that the expected future economic benefits that are attributable to the asset will increase. Intangible assets other than goodwill and intangibles with indefinite useful lives are amortized on a straight-line basis over their estimated useful lives from the date that they are available for use. The estimated useful lives of the intangible assets are as follows:

However, useful lives of certain trademarks and memberships, which are determined to be indefinite since there is no foreseeable limit to the period over which the assets are expected to generate net cash inflows for the Group, are not amortized but tested for impairment once a year.

Goodwill acquired in a business combination is measured as the excess of the sum of: a) the consideration transferred, b) the amount of any non-controlling interests in the acquiree, and c) the fair value of the acquirer's previously held equity interest in the acquiree (if any); over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed and is classified as intangible assets. Goodwill is tested for impairment annually and carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any. Impairment loss recognized for goodwill is not reversed. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.

Expenditures relating to development activities are capitalized when the result of the development is for the development of new products or substantial improvement of functions of existing products; there is technical and commercial feasibility of completing the development; and the Group has the ability to measure reliably the expenditure attributable to the development. Capitalized development cost include expenditure on materials, salaries, wages and other employment-related costs of personnel directly engaged in generating assets and related overhead cost which is systematically allocated. Capitalized development costs are presented at the acquisition cost less accumulated amortization and accumulated impairment losses. Capitalized development costs are amortized using the straight-line method over the estimated useful life and amortization expenses are included in cost of goods manufactured and amortization in selling and administrative expenses. The expenditure on research and development which does not meet conditions noted above is recognized as an expense when it is incurred.

The estimated useful life and amortization method for intangible assets with finite useful lives are reviewed at the end of each reporting period and for the assets which have been assessed as having indefinite useful life, that assessment is revisited each period, with the effect of any changes in estimate being accounted for as a change in accounting estimate.

Useful lives Industrial property rights 5~10 years Development costs 4~12 years Others 2~20 years

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2-13. Investment property Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, the book value of investment property is presented at the cost less accumulated depreciation and accumulated impairment.

While land is not depreciated, building is depreciated using the straight-line method over the useful lives between 20 and 48 years.

The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for as a change in accounting estimate.

2-14 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use.

2-15. Impairment of non-financial assets Assets with indefinite useful lives such as goodwill are not amortized but tested for impairment annually. Assets which are amortized or depreciated are tested for impairment to determine whether events and circumstances indicating those assets have suffered impairment exist. Impairment loss is the excess of the carrying amount over recoverable amount. Recoverable amount is the higher of fair value less costs to sell and value in use. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Except for goodwill, all non-financial assets that have incurred impairment are tested for reversal of impairment at the end of each reporting period.

2-16. Borrowings Borrowings are measured initially at fair value, net of transaction costs and subsequently at amortized cost using the EIR, with interest expense being recognized on an effective yield basis. The difference between the amount received and the redemption amount is amortized using the effective interest method and recognized in profit or loss. Borrowings are classified as non-current liabilities when the Group has an unconditional right to defer settlement of the liability for at least twelve months after the end of the reporting period. Otherwise borrowings are classified as current liabilities.

2-17. Compound financial instrument Compound financial instruments issued by the Group are classified as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. The conversion right of convertible bonds and stock warranties embedded in compound financial instrument issued by the Group which can, at the option of the holder, be converted into a fixed number of equity instruments in the Group, is classified as equity.

The liability component of a convertible bonds and bonds with stock warranties is recognized at the fair value of a similar liability on initial recognition and be measured at amortized cost by applying the EIR until it is extinguished. The equity component is measured by deducting the fair value of the liability component from the fair value of the compound financial instrument as a whole on initial recognition. Any tax effect is also reflected, and such instrument is not subsequently remeasured.

The conversion right that is an embedded derivative is recognized at the market value of a similar derivative or at the fair value derived from an appropriate valuation model. Subsequent changes in fair value of the conversion right are recognized in profit or loss.

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2-18. Financial guarantee contracts The Group has financial guarantee contract liabilities, which are obligations to pay specific amounts for indemnifying creditors’ loss on insolvency of specific debtors according to initial or revised contract provisions of liabilities on the payment date. Financial guarantee contract liabilities are initially measured at their fair value less the direct transaction cost relating to the issuance. Subsequently, financial guarantee contract liabilities are measured at the higher of the amount of the obligations under the contract, as determined in accordance with KIFRS 1037 Provisions, Contingent Liabilities and Contingent Assets, and the amount initially recognized less the cumulative amortizations recognized in accordance with the KIFRS 1018 Revenue.

2-19. Employee benefits liability The Group operates various types of benefit plans, and generally makes contributions calculated based on periodic actuarial calculations to separately administered funds such as qualifying insurance companies or trust funds.

A defined contribution plan is a post-employment benefit plan, under which the Group pays fixed contribution to a separately administered fund. The Group does not assume any legal or constructive obligation to pay the additional contribution even if the fund does not hold sufficient assets to pay benefits, relating to employee’s service in the current and prior periods, in full. The contribution is recognized as pension benefit at the date of payment. If the contribution already paid exceeds the contribution due for services rendered prior to the end of the reporting period, the Group recognizes such excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.

Defined benefit plans are post-employment benefit plans other than defined contribution plans. Generally, under the defined benefit plan, amounts to be paid as retirement benefits are determined by reference to a formula usually based on employees' earnings, years of service, ages and other considerations. The retirement benefit obligation recognized in the consolidated statements of financial position represents the present value of the defined benefit obligation, less fair value of plan assets and adjustment for unrecognized past service cost. The defined benefit obligation is calculated by an independent actuary using the projected unit credit method. The present value of the defined benefit obligation is denominated in the same currency in which the benefits are expected to be paid, and calculated at the discount rate which is the yield at the reporting date on high quality corporate bonds that have maturity dates approximating the terms of the Group’s obligation.

Actuarial gain or loss from changes in actuarial assumptions or differences between actuarial assumptions and actual results is recognized in other comprehensive income or loss, which is immediately reflected in retained earnings. Past service cost is directly recognized in profit or loss in the period the plan amendment or curtailment occurs.

2-20. Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. A provision is measured using the present value of the cash flows estimated to settle the present obligation when the effect of the time value of money is material. At the end of each reporting period, the remaining provision balance is reviewed and assessed to determine if the current best estimate is being recognized. The increase in provision due to passage of time is recognized as interest expense. If the existence of an obligation to transfer economic benefit is no longer probable, the related provision is reversed during the period.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. In this case, any income arising from the third party reimbursement is netted off against the related expense to be recognized in the consolidated statements of profit or loss from the recognition of provisions.

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2-21. Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

2-22. Derivative financial instruments and hedge accounting Derivatives are initially recognized at fair value at the date the derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is generally recognized as profit or loss when it is incurred. However, the effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income or loss. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss.

1) Hedge accounting The Group operates fair value hedges to avoid the risk of fair value change, which is incurred from specific risk on assets, liabilities and firm contracts, and cash flow hedges to avoid the risk of future cash flow change, which is incurred from specific risk on expecting contracts. At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group assesses whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item.

Fair value hedges Changes in the fair value of derivatives that are designated and qualified as fair value hedges (or gain or loss on foreign currency translation, when a financial instrument, not derivative is designated as the hedging instrument) are recognized in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

Cash flow hedges The effective portion of change in the fair value of derivatives that are designated and qualify as cash flow hedges for decreasing risk incurred from change of future cash flow on forecast transaction is recognized in other comprehensive income or loss. Amounts previously recognized in other comprehensive income or loss and accumulated in equity are reclassified to profit or loss in the periods when the hedged item is recognized in profit or loss, or is reflected in the carrying amount of the associated asset or liability when the forecasted transaction occurs. Even when hedge accounting is discontinued due to the expiration, termination or exercise of hedging instrument, subsequent accounting treatment of amounts recognized in other comprehensive income or loss and accumulated in equity is the same. However, when hedge accounting is discontinued due to forecast transaction being no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss.

2) Separable embedded derivatives Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria has been met: (a) the economic characteristics and risks of the host contract and the embedded derivatives are not clearly and closely related to a separate instrument with the same terms as the embedded derivative that would meet the definition of a derivative, and (b) the hybrid (combined) instrument is not measured at fair value through profit or loss. Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

3) Other derivative financial instruments Derivative financial instruments other than the effective portion of derivative financial instruments that are designated as the hedging instruments are measured at fair value. Gain or loss arising from changes in fair value is recognized in profit or loss.

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2-23. Dividend Dividend payable is recognized as liability when declaration of the dividend is approved in the shareholders’ meeting. 2-24. Issued capital Common stocks are classified as equity, and the incremental costs directly arising from capital transactions, net of tax are deducted from equity. Preferred stocks are classified as equity only if the preferred stocks are not redeemable or redeemable solely upon the Group’s decision, or the distribution of dividends is solely upon the Group's decision. Once a general meeting of shareholders meeting approves dividends, the Group recognizes the dividend liability accordingly.

Own equity instruments that are reacquired (treasury shares) are recognized at cost and deducted from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments.

2-25. Share-based payments The Group measures the cost of share options granted to employees by reference to the estimated fair value at the date at which they are granted. The share-based payment expenses are recognized on a straight-line basis over the vesting period reflecting expected forfeiture rate. The Group determines the fair value of share option using the Black-Scholes option pricing model.

2-26. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable for the sale of goods and rendering of services arising in the course of the ordinary activities of the Group. Revenue is reduced for value added tax, estimated customer returns, rebates and trade discounts and is presented after eliminating intercompany transactions. The Group recognizes revenue when the amount of revenue can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the Group and when transaction meets the revenue recognition criteria specified by activity. When measuring revenue, the Group reliably estimates on contingencies related to sales based on historical data such as customer type, transaction type and trading terms.

Sale of goods Revenue from the sale of goods is recognized when the Group has transferred to the buyer the significant risks and rewards of ownership of the goods. Revenue is recognized on initial delivery of the goods net of expected discounts and returns estimated based on historical data. The Group estimates and recognizes provision for warranty and sales return arising from sale of goods.

Rendering of services If the outcome of a contract can be reliably measured, contract revenue and contract cost associated with the construction contract are recognized by reference to the stage of completion of the contract activity at the end of the reporting period. The stage of completion of the contract is assessed by reference to the proportion of the actual contract costs incurred to the costs to complete the contract. Should the construction contract expect to incur loss (total contract cost exceeds total contract revenue), such loss is immediately recognized in profit or loss. Revenue from service transactions other than a construction contract is recognized by using percentage of completion method.

Other income Royalty revenue is recognized on an accrual basis in accordance with the substance of the relevant agreement. Revenues arising from dividends are recognized when the right to receive the dividend payment is established. Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is recognized using the effective interest method. Lease income is accounted for on a straight-line basis over the lease terms.

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2-27. Government grants Government grants that are earmarked for the acquisition of assets are recognized as a deduction from the acquisition cost of the received assets or other assets for temporarily investing received assets before the intended assets are acquired. When the intended assets are acquired, they are recorded as a deduction from the acquisition cost.

Government grants that have no specific condition for their use are recognized in operating income when it is directly related to primary operations. If not, government grants are recognized in other non-operating income. If there are specific expenses related to government grants, the Group offsets the income from government grants with such expenses and recognizes the net amount in profit or loss.

2-28. Taxes and deferred tax Income tax expense is composed of current and deferred tax. Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or loss or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or loss or directly in equity, respectively.

Income tax (current tax) expense is the sum of corporate tax for each fiscal year and tax added to corporate tax under corporate income tax law and other applicable laws. Additional income taxes or tax refunds for the prior periods are included in income tax expense for the current period when recognized. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable income. Deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable income nor the accounting income.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, joint ventures and associates except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable income against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the asset to be recovered.

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2-29. Non-current assets held for sale Non-current assets and disposal groups are classified as held-for-sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell and are no longer depreciated or amortized.

If the fair value less costs to sell of the non-current assets held-for-sale (and disposal groups) decrease, impairment loss is recognized immediately in profit or loss. A gain should be recognized for any subsequent increase in fair value less costs to sell of an asset, but not in excess of the cumulative impairment loss previously recognized.

2-30. Operating segments Operating segments are reported on the same basis as the financial information that is reported to the management of the Group. The management of the Group is responsible for the allocation of resources and assessment of performance for the operating segments.

2-31. Greenhouse gas emissions The Group receives free emission rights as a result of emission trading schemes. The rights are received on an annual basis and, in return, the Group is required to remit rights equal to its actual emissions. The Group has adopted the net liability approach to the emission rights granted. Therefore, a provision is recognized only when actual emissions exceed the emission rights granted and still held. The emission costs are recognized as other operating costs. Where emission rights are purchased from other parties, they are recorded at cost, and treated as a reimbursement right, whereby they are matched to the emission liabilities and re-measured to fair value. The changes in fair value are recognized in the statement of profit or loss and other comprehensive income.

2-32. Standards issued but not yet effective The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements are disclosed below.

KIFRS 1109 Financial Instruments The KASB issued the final version of KIFRS 1109 Financial Instruments that replaces KIFRS 1039 Financial Instruments: Recognition and Measurement and all previous versions. KIFRS 1109 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. KIFRS 1109 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.

KIFRS 1115 Revenue from Contracts with Customers Under KIFRS 1115, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under KIFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after January 1, 2018. Early adoption is permitted.

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2-32. Standards issued but not yet effective (cont’d)

Amendments to KIFRS 1111 Joint Arrangements: Accounting for Acquisitions of Interests The amendments to KIFRS 1111 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business must apply the relevant KIFRS 1103 principles for business combinations accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to KIFRS 1111 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are prospectively effective for annual periods beginning on or after January 1, 2016, with early adoption permitted.

Amendments to KIFRS 1016 and KIFRS 1038: Clarification of Acceptable Methods of Depreciation and Amortization The amendments clarify the principle in KIFRS 1016 and KIFRS 1038 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. The amendments are effective prospectively for annual periods beginning on or after January 1, 2016, with early adoption permitted.

Amendments to KIFRS 1110 and KIFRS 1028: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments address the conflict between KIFRS 1110 and KIFRS 1028 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in KIFRS 1103, between an investor and its associate or joint venture, is recognized in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognized only to the extent of unrelated investors’ interests in the associate or joint venture. These amendments must be applied prospectively and are effective for annual periods beginning on or after January 1, 2016, with early adoption permitted.

Amendments to KIFRS 1001 Disclosure Initiative The amendments to KIFRS 1001 Presentation of Financial Statements clarify, rather than significantly change, existing KIFRS 1001 requirements. The amendments clarify: The materiality requirements in KIFRS 1001 That specific line items in the statement(s) of profit or loss and OCI and the statement of financial

position may be disaggregated That entities have flexibility as to the order in which they present the notes to financial statements That the share of OCI of associates and joint ventures accounted for using the equity method must be

presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss

Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and OCI. These amendments are effective for annual periods beginning on or after January 1, 2016, with early adoption permitted.

The Group examines the effect of the standards and interpretations to financial statement, The Group intends to adopt these standards, if applicable, when they become effective.

.

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3. Significant accounting estimates and assumptions The estimates and underlying assumptions are reviewed on an ongoing basis. The estimates and underlying assumptions are based on historical experiences and other factors including expectation on possible future events. Actual results may differ from these estimates. The following are critical assumptions and key sources of estimation uncertainty at the end of reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of the Group’s assets and liabilities within the next financial year. Revenue recognition based on percentage of completion Revenue for construction contracts is recognized using the percentage-of-completion method, under which revenue is recognized as work progresses in the ratio of actual costs incurred to estimated total costs. Any changes in the early stages of long-term projects in the scope and costs of project implementation in the construction period, and in construction plans may have a significant effect on the amount of revenue recognized.

Impairment of goodwill Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired. Recoverable amount of cash generating unit (CGU) is calculated based on the value in use, this calculation requires the use of accounting estimates.

Employee benefit liability The Group operates a defined benefit plan. Defined benefit liability is calculated by annual actuarial valuations as at the reporting date. In order to perform the actuarial valuations, assumptions for discount rates, future salary increases and others are required to be estimated.

Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. In accordance with the relevant laws and practices, the estimated amounts may change to allow for additional provisions to be recognized in future periods.

Deferred tax Recognition and measurement of deferred tax assets and liabilities require judgement of the Group’s management. Especially, the recognition of deferred tax asset and the scope of recognition are influenced by assumptions about future circumstances and judgement of management.

Impairment of non-financial assets Impairment exists when the carrying value of an asset or CGU exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow (DCF) model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. The key assumptions used to determine the recoverable amount for the different CGUs.

33


4. Financial risk management The Group is exposed to various financial risks such as market risk, credit risk and liquidity risk relating to its operations. The objective of the Group’s risk management policy is to improve financial structure and enhance the efficiency of treasury operations for sustainable business performance.

Financial risk management activities are performed by the Group’s treasury department in accordance with risk management policies. In addition, the Group monitors financial risks regularly to minimize the effect from such relevant risks.

4-1. Market risk

(1) Foreign currency risk The Group’s exposure to the risk of changes in foreign currency exchange rates relates primarily to the Group’s operating activities and net investments in foreign subsidiaries. The Group’s objective of foreign currency risk management is to minimize uncertainty and volatility arising from fluctuations in foreign currency exchange rates. Foreign currency risk is managed in accordance to the Group’s policy on foreign currencies, and currency trading for speculative purposes is prohibited.

The Group manages foreign currency risk by matching the inflow and the outflow of foreign currencies (natural hedge) and by using currency derivatives, such as currency forwards, for the remaining exposure.

The Group’s book value of financial assets and liabilities denominated in foreign currencies as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015

USD EUR JPY GBP Others (*1) Total I. Financial

assets ￦ 1,781,696 ￦ 235,622 ￦ 3,708 ￦ 43,382 ￦ 246,533 ￦ 2,310,941 II. Financial

liabilities 3,389,590 585,539 85,566 46,503 127,272 4,234,470 Net (I-II) ￦ (1,607,894) ￦ (349,917) ￦ (81,858) ￦ (3,121) ￦ 119,261 ￦ (1,923,529)

2014 USD EUR JPY GBP Others (*1) Total

I. Financial assets ￦ 1,958,448 ￦ 314,100 ￦ 2,846 ￦ 61,882 ￦ 182,737 ￦ 2,520,013

II. Financial liabilities 3,135,018 806,002 128,050 42,678 61,847 4,173,595

Net (I-II) ￦ (1,176,570) ￦ (491,902) ￦ (125,204) ￦ 19,204 ￦ 120,890 ￦ (1,653,582)

(*1) Others are translated into Korean won in millions from foreign currencies except for USD, EUR, JPY and GBP.

The following table demonstrates the sensitivity of a 10% fluctuation in foreign currency exchange rates, all other variables held constant, on the Group’s profit (loss) before tax for the years ended December 31, 2015 and 2014 (Korean won in millions):

2015 2014 10% increase 10% decrease 10% increase 10% decrease

Profit (loss) before tax ￦ (192,353) ￦ 192,353 ￦ (165,358) ￦ 165,358

The above sensitivity analysis is for financial assets and liabilities denominated in foreign currencies other than functional currencies as at December 31, 2015 and 2014.

34


4. Financial risk management (cont’d)

4-1. Market risk (cont’d)

(2) Interest rate risk Interest rate risk is the risk of fluctuations in interest rates, which mainly occur in floating rate deposits and borrowings. The objective of the interest rate risk management is to minimize the financial costs and uncertainty associated with interest rate changes. The Group utilizes internally reserved funds to minimize external borrowings, improve the structure of short-term and long-term borrowings, maintain optimal levels of floating rate borrowings compared to fixed rate borrowings, and regularly monitor trends in domestic and overseas interest rate movements in order to manage such risk. Floating rate financial assets and liabilities exposed to interest rate risk as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Financial assets ￦ 576,278 ￦ 308,665 Financial liabilities 5,469,319 4,389,496 Net ￦ (4,893,041) ￦ (4,080,831)

Assuming all other variables are held constant, the effect of a 100 basis point (bp) change in interest rates on profit (loss) before tax for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014

100 bp increase 100 bp decrease 100 bp increase 100 bp decreaseProfit (loss) before tax ￦ (48,930) ￦ 48,930 ￦ (40,808) ￦ 40,808

(3) Other market price risk The Group is exposed to market price risk arising from changes in the fair value or future cash flows of financial investments, especially equity instruments listed on stock exchanges. The Group assesses market price risk on a regular basis. Significant investments within a portfolio are individually managed and all decisions related to the purchase and disposal of such investments are approved by the Board of Directors.

4-2. Credit risk

The Group is exposed to credit risk, which is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Credit risk arises from trade and other receivables, held-for-sale financial assets except for equity instruments, deposits in financial institutions, derivative financial instruments and financial guarantee contracts.

The Group enters into transactions with customers having met a certain level of credit quality and maintains policies and procedures on financial assets to manage such risks. The credit quality of a new customer is assessed based on publicly announced financial information and the information provided by credit rating agencies. Such assessment is used as a basis for determining a customer’s credit limit. Furthermore, collaterals and credit guarantees are obtained as security, if necessary. In addition, the Group periodically reassesses the credit quality of customers by auditing credit limits and adjusts the amount covered by collaterals when deemed necessary. The Group also monitors whether the collection of financial assets have been impaired to take relevant actions.

35



4-2. Credit risk (cont’d)

The following table presents, the carrying amounts of the Group’s financial instruments that are exposed to credit risk. The carrying amounts indicate maximum exposure of credit risk (Korean won in millions).

Description 2015 2014 Loans and other receivables Cash and cash equivalents ￦ 1,893,008 ￦ 1,297,560

Short and long- term financial instruments 553,225 676,194

Trade receivables and other receivables 4,225,543 4,284,485

Deposits 253,323 309,024 Held-to-maturity financial assets 8,350 36,310 Available-for-sale financial assets (excluding equity securities) 7 2,950

Derivative financial assets 88,405 65,254 ￦ 7,021,861 ￦ 6,671,777

Excluding the above financial instruments, the maximum guarantee amounts based on the Group’s payment guarantee contracts are described in Note 33.

The aging analysis of trade and other receivables (excluding guarantee deposits) as at December 31, 2015 and December 31, 2014 is as follows (Korean won in millions):

2015 Before

maturity 0~3 months 3~6 months6~12

months More than 12

months Total Trade receivables ￦ 1,292,419 ￦ 309,832 ￦ 155,501 ￦ 175,189 ￦ 2,416,303 ￦ 4,349,244

Loans and other receivables 489,981 270,441 43,350 102,759 1,310,813 2,217,344

Accrued income 37,776 101,233 - - 10,297 149,306

￦ 1,820,176 ￦ 681,506 ￦ 198,851 ￦ 277,948 ￦ 3,737,413 ￦ 6,715,894

2014

Before maturity 0~3 months 3~6 months 6~12 monthsMore than 12

months Total Trade receivables ￦ 1,155,844 ￦ 312,107 ￦ 145,724 ￦ 128,918 ￦ 2,336,378 ￦ 4,078,971

Loans and other receivables 179,734 388,007 77,621 63,129 1,289,690 1,998,181

Accrued income 7,399 457 577 1,653 107,188 117,274

￦ 1,342,977 ￦ 700,571 ￦ 223,922 ￦ 193,700 ￦ 3,733,256 ￦ 6,194,426

An allowance is recognized by applying appropriate allowance rates for receivables that can be assessed to be impaired individually due to insolvency, bankruptcy and others. A group of financial assets that are not individually significant and have similar credit risk characteristics are assessed for impairment on a collective basis based on aging analysis and the Group’s past experience of receivables collection. Available-for-sale financial assets, held-to-maturity financial assets, deposits in financial institutions and derivative financial instruments are individually assessed for impairment.

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4-3. Liquidity risk

The Group is exposed to liquidity risk, which is the risk that it will encounter difficulties in fulfilling the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

The Group manages liquidity risk by matching the duration of financial assets and liabilities through estimating future cash flows from its operating, investing and financing activities, and securing moderate levels of liquidity in advance.

The maturity profiles of the Group’s major financial liabilities based on contractual amounts as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015

Book value Total Less than 1 year 2 years or less 5 years or less More than 5

years Principal ￦ 16,218,972 ￦ 16,245,785 ￦ 10,045,230 ￦ 2,266,430 ￦ 2,098,613 ￦ 1,835,512 Interest - 885,032 340,817 188,475 322,449 33,291

￦ 16,218,972 ￦ 17,130,817 ￦ 10,386,047 ￦ 2,454,905 ￦ 2,421,062 ￦ 1,868,803

2014

Book value Total Less than 1 year 2 years or less 5 years or less More than 5

years Principal ￦ 15,657,720 ￦ 15,701,611 ￦ 8,743,750 ￦ 2,745,686 ￦ 2,458,749 ￦ 1,753,426 Interest - 1,132,908 413,774 257,103 353,054 108,977

￦ 15,657,720 ￦ 16,834,519 ￦ 9,157,524 ￦ 3,002,789 ￦ 2,811,803 ￦ 1,862,403

The contractual amounts of financial liabilities in the above tables are not discounted and differ from their book values. Besides the above non-derivative liabilities, the maximum guarantee amounts based on financial guarantee contracts provided by the Group as at December 31, 2015 are described in Note 33.

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4-4. Capital risk management

The objective of the Group’s capital risk management is to secure its ability to provide earnings to its shareholders and interested parties and sustain optimal capital structure to reduce the cost of capital. In order to sustain optimal capital structure, the Group uses a debt-to-equity ratio similar to other entities in the industry. Debt-to-equity ratio is calculated by dividing total liabilities by total equity and net borrowings-to-equity ratio is calculated by dividing net borrowings by total equity. Net borrowings are calculated by deducting cash and cash equivalents, short and long term financial instruments from total borrowings.

The Group’s debt-to-equity ratio and net borrowings-to-equity ratio as at December 31, 2015 and 2014 are as follows (Korean won in millions, except debt-to-equity ratio and net borrowings-to-equity ratio):

2015 2014 Total liability (A) ￦ 20,234,033 ￦ 19,874,905 Total equity (B) 7,026,108 7,677,002 Debt-to-equity ratio (A/B) 287.98% 258.89%Cash and Cash equivalent, short-term/long-term financial instruments (C) 2,446,233 1,973,754 Total borrowings (D) 12,605,543 11,700,149 Net borrowings (E=D-C) 10,159,310 9,726,395 Net borrowings-to-equity ratio (E/B) 144.59% 126.70%

5. Restricted financial instruments

Restricted financial instruments as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Restrictions Cash and cash equivalents

￦ 12,271 ￦ 29,083 Project finance guarantee, import deposit and

others Short-term financial instruments

357,627

438,981 Government R&D projects (*1), advanced receipts from contractors (*2), shared growth fund, establishment of a pledge right, collateral for long-term borrowings and others

Long-term financial instruments

2,082 56,770 Security deposits for maintenance of checking accounts, beneficiary certificates and others

Deposits 584

- Reserves for repayments related to asset-

backed loans ￦ 372,564 ￦ 524,834

(*1) The amounts are restricted in use and may only be used for specific national R&D projects.

(*2) The amounts may only be used for designated construction contracts.

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6. Short and long-term investments in securities

6-1. Short and long-term investments in securities as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Description 2015 2014 Short-term

investments in securities

Available-for-sale financial assets ￦ 441 ￦ 3,385

Held-to-maturity financial assets - 28,000 441 31,385

Long-term investments in securities

Available-for-sale financial assets 182,070 179,632

Held-to-maturity financial assets 8,350 8,310 190,420 187,942 ￦ 190,861 ￦ 219,327

6-2. Available-for-sale financial assets as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Description 2015 (*1) 2014 Marketable equity securities

Hana Financial Group Inc. ￦ 93 ￦ 126 Others 456 574

549 700 Non-marketable equity securities

Incheon-Kimpo Expressway Co., Ltd. 28,480 28,480

Hwaseong City Expressway Co., Ltd. 9,578 6,859 Korea Housing Guarantee Co., Ltd. - 11,709 Alpha Dome City Co., Ltd. 16,201 15,498 Kangnam Beltway

Co., Ltd. 4,965 5,187 Pohang Yeongil New Port Corporation 6,479 7,432 Masan Sewage Pipe Co., Ltd. 725 848 S-Y Highway Co., Ltd. 19,848 16,215 Sudokwon Seobu Expressway Co., Ltd. 9,174 9,174 Daegu South

Circulation Road Corporation 4,502 3,965 UITrans LRT Co., Ltd. 8,706 6,025 Seoul-Munsan Expressway

Co,.Ltd 1,166 906 Busan New Port the 2nd Rear Road Co,.Ltd. 4,532 4,532 Kyunggi South

Road Co., Ltd. 4,232 4,181 Others 5,157 4,323

123,745 125,334 Other equity investments

Lanco Kondapalli Power Ltd. 12,050 12,050 Machinery Financial Cooperative 6,363 5,855 Construction Guarantee Cooperative 31,434 31,291

39


6. Short and long-term investments in securities (cont’d)

Description 2015 (*1) 2014 Korea Finance Corporation Neoplux 2010-7 ￦ 1,955 ￦ 3,735 Emerald Technology

Ventures 2,201 -Others 1,535 397

55,538 53,328 Beneficiary certificate Nicolas Correa S.A. 2,011 420

Others 661 285 2,672 705

Investment trust Asset Backed Commercial Paper - 2,943

Debit securities Regional development bonds and others 7 7

￦ 182,511 ￦ 183,017

(*1) As at December 31, 2015, a portion of the Group’s available-for-sale financial assets has been pledged as collateral for the Group’s borrowings and developers’ project financing (See Note 34).

6-3. Change in fair value of available-for-sale financial assets for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015

January 1 Valuation Reclassified to profit or loss December 31

Marketable equity securities ￦ (3,586) ￦ (533) ￦ - ￦ (4,119)Non-marketable equity securities (1,543) (65) (31,782) (33,390)

Other equity investments 4,705 112 - 4,817 Tax effect 221 68 1,859 2,148

￦ (203) ￦ (418) ￦ (29,923) ￦ (30,544)

2014

January 1 Valuation Reclassified to profit or loss December 31

Marketable equity securities ￦ (3,461) ￦ (111) ￦ (14) ￦ (3,586)

Non-marketable equity securities (2,525) 982 - (1,543)Debit securities 49 - (49) -Other equity investments 3,939 766 - 4,705 Tax effect 569 (356) 8 221

￦ (1,429) ￦ 1,281 ￦ (55) ￦ (203)

6-4. Held-to-maturity financial assets as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Current Non-current Current Non-current

Government and corporate bonds ￦ - ￦ 49 ￦ - ￦ 9

Other debt securities - 8,301 28,000 8,301 ￦ - ￦ 8,350 ￦ 28,000 ￦ 8,310

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7. Trade and other receivables

7-1. Trade and other receivables as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015

Gross amounts Allowance for doubtful

accounts Book value Current assets:

Trade receivables ￦ 4,332,263 ￦ (1,819,469) ￦ 2,512,794 Other receivables 540,335 (150,469) 389,866 Accrued income 149,306 (30,239) 119,067 Short-term loans 303,467 (125,083) 178,384

5,325,371 (2,125,260) 3,200,111 Non-current assets:

Long-term trade receivables 5,945 (76) 5,869 Long-term other receivables 4,208 (3,875) 333 Long-term loans 1,366,683 (347,453) 1,019,230

1,376,836 (351,404) 1,025,432 ￦ 6,702,207 ￦ (2,476,664) ￦ 4,225,543

2014

Gross amounts Allowance for doubtful

accounts Book value Current assets:

Trade receivables ￦ 4,063,362 ￦ (1,498,931) ￦ 2,564,431 Other receivables 453,968 (122,895) 331,073 Accrued income 117,274 (1,910) 115,364 Short-term loans 557,799 (16,205) 541,594

5,192,403 (1,639,941) 3,552,462 Non-current assets:

Long-term trade receivables 6,707 (80) 6,627 Long-term other receivables 5,965 - 5,965 Long-term loans 976,964 (257,533) 719,431

989,636 (257,613) 732,023 ￦ 6,182,039 ￦ (1,897,554) ￦ 4,284,485

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7. Trade and other receivables(cont’d)

7-2. Changes in allowance for doubtful accounts for the years ended December 31, 2015 and 2014 are summarized as follows (Korean won in millions):

2015

January 1

Provision for (reversal of) allowance

Write-off of uncollectible

amounts

Changes in foreign

currency translation and others December 31

Trade and other receivables: Trade receivables ￦ 1,499,011 ￦ 279,259 ￦ (152,587) ￦ 193,862 ￦ 1,819,545 Other receivables 122,895 50,248 (19,288) 489 154,344 Accrued income 1,910 28,329 - - 30,239 Short and long-term loans 273,738 198,599 (503) 702 472,536

1,897,554 556,435 (172,378) 195,053 2,476,664 Others:

Due from customers for contract work 43,639 41,847 (384) - 85,102

Deposits 1,685 (142) (904) - 639 Prepayments 21,170 549 - 2 21,721 Other non-current assets - 5,970 (5,970) - -

66,494 48,224 (7,258) 2 107,462 ￦ 1,964,048 ￦ 604,659 ￦ (179,636) ￦ 195,055 ￦ 2,584,126

2014

January 1

Provision for (reversal of) allowance

Write-off of uncollectible

amounts

Changes in foreign

currency translation and others December 31

Trade and other receivables: Trade receivables ￦ 1,457,830 ￦ 107,624 ￦ (58,502) ￦ (7,941) ￦ 1,499,011 Other receivables 86,768 36,500 (5,142) 4,769 122,895 Accrued income 2,378 (468) - - 1,910 Short and long-term loans 251,451 21,970 - 317 273,738

1,798,427 165,626 (63,644) (2,855) 1,897,554 Others:

Due from customers for contract work 41,588 5,575 (3,524) - 43,639

Deposits 1,705 (9) - (11) 1,685 Prepayments 19,828 3,914 (2,624) 52 21,170

63,121 9,480 (6,148) 41 66,494 ￦ 1,861,548 ￦ 175,106 ￦ (69,792) ￦ (2,814) ￦ 1,964,048

Trade and other receivables that are overdue are deemed impaired. An allowance for doubtful account is individually recognized for receivables that can be assessed individually for impairment. An allowance for doubtful account is recognized based on the aging analysis and the Group’s past collection experience for the group of receivables that are not individually significant and have similar characteristics. Allowance for doubtful accounts is included in selling and administrative expenses and other non-operating expenses in the consolidated statements of profit or loss.

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8. Inventories

Inventories as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015

Acquisition cost Provision for loss on

valuation Carrying amountsFinished goods ￦ 549,210 ￦ (51,390) ￦ 497,820 Merchandise 481,645 (30,975) 450,670 Semi-finished goods 38,482 - 38,482 Work-in-process 455,094 (26,391) 428,703 Raw materials 591,312 (59,503) 531,809 Supplies 23,959 (288) 23,671 Materials-in-transit 184,218 - 184,218 Unfinished houses 20 - 20 Site 41,099 - 41,099

￦ 2,365,039 ￦ (168,547) ￦ 2,196,492

2014

Acquisition cost Provision for loss on

valuation Carrying amountsFinished goods ￦ 575,581 ￦ (50,265) ￦ 525,316 Merchandise 422,997 (25,138) 397,859 Semi-finished goods 50,599 - 50,599 Work-in-process 440,291 (17,701) 422,590 Raw materials 601,715 (46,489) 555,226 Supplies 20,991 (347) 20,644 Materials-in-transit 356,805 - 356,805 Unfinished houses 2,871 - 2,871

￦ 2,471,850 ￦ (139,940) ￦ 2,331,910 Loss on valuation of inventories amounting to ￦28,607 million and ￦24,323 million were recognized in cost of sales for the years ended December 31, 2015 and 2014, respectively.

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9. Derivative financial instruments 9-1. Derivative financial instruments as at December 31, 2015 and December 31, 2014 are summarized as follows (Korean won in millions and USD, EUR and JPY in thousands):

2015

Buy Sell

Derivative financial assets

(liabilities)

Gain (loss) on valuation of derivative

financial instruments

Accumulated other

comprehensive income (loss)

(*1)

Firm commitment

assets (liabilities)

(*2) Foreign currency forward KRW 6,575,715 USD 5,879,087 ￦ (309,899) ￦ (256,150) ￦ (33,337) ￦ 135,560

KRW 229,362 EUR 177,544 (217) 1,130 1,507 (499)

KRW 257,857 JPY 24,461,934 6,051 (7,848) (177) (3,885)

KRW 153,305 Others (1,377) (242) (1,134) 142

USD 2,307,415 KRW 2,603,838 82,276 78,393 43,787 (19,061)

EUR 415,594 KRW 557,771 (16,071) (5,301) (4,998) 5,112

JPY 29,201,574 KRW 337,724 (35,143) 2,295 (8,735) (19)

Others KRW 155,317 1,916 (749) 2,815 (132)

GBP and others EUR and others 3,037 (19,780) (7,632) (698)Long-term borrowings denominated in foreign currency (*3) KRW 210,710 USD 200,000 - - -

23,690

Embedded derivatives and others (*4) (447) 39,412 - -

Put back option (See 9-2) (6,800) (6,955) - - (276,674) (175,795) (7,904) 140,210

Tax effect - - 2,096 -

Adjustments for consolidation - - 24,423 -

￦ (276,674) ￦ (175,795) ￦ 18,615 ￦ 140,210

(*1) In consideration of the amounts adjusted in revenue, the effective portion of changes in fair value of cash flow hedges amounting to ￦18,615 million, net of tax, was recognized in accumulated other comprehensive income or loss.

(*2) In consideration of the amounts adjusted in revenue, firm commitment assets of ￦185,271 million and firm commitment liabilities of ￦45,061 million were recognized in the consolidated statement of financial position by applying the fair value hedge accounting.

(*3) The Group designated its long-term borrowings denominated in foreign currencies as hedging instruments to hedge the fair value change of firm commitments.

(*4) Represents amounts related to the exchange rights on exchangeable bonds issued by the Company and the valuation of the contract between the Company and the shareholders of redeemable convertible preferred stock issued by DEC.

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9. Derivative financial instruments (cont’d)

2014

Buy Sell

Derivative financial assets

(liabilities)

Gain (loss) on valuation of derivative financial

instruments

Accumulated other comprehensive

income (loss) (*1)

Firm commitment assets

(liabilities) (*2) Foreign

currency forward

KRW 6,376,222 USD 5,857,419 ￦ (93,400) ￦ (122,533) ￦ (24,052) ￦ 43,549

KRW 287,154 EUR 202,778 13,233 2,328 11,980 (1,461)

KRW 301,941 JPY 28,539,929 23,479 20,384 15,686 (19,431)

KRW 103,522 Others 3,608 397 966 (2,629)

USD 2,388,001 KRW 2,643,095 (7,288) 35,228 10,144 (17,409)

EUR 321,234 KRW 461,702 (24,431) (10,393) (14,437) 8,325

JPY 37,720,809 KRW 462,015 (93,138) (19,333) (61,600) 4,516

Others

KRW 82,252 (3,508) (1,338) (1,637) 1,561 GBP and others EUR and others (27,689) (20,399) (13,509) (1,061)

Long-term borrowings denominated in foreign currency (*3) KRW 152,160

USD 150,000

- - - 12,720

Embedded derivatives and others (*4) (39,860) (73,084) - -

Put back option (See 9-2) (167) (682) - -

(249,161) (189,425) (76,459) 28,680

Tax effect - - 18,763 -

Adjustments for consolidation - - 20,756 -

￦ (249,161) ￦ (189,425) ￦ (36,940) ￦ 28,680

(*1) In consideration of the amounts adjusted in revenue, the effective portion of changes in fair value of cash flow hedges amounting to ￦(36,940) million, net of tax, was recognized in accumulated other comprehensive income or loss.

(*2) In consideration of the amounts adjusted in revenue, firm commitment assets of ￦120,695 million and firm commitment liabilities of ￦92,015 million were recognized in the consolidated statement of financial position by applying the fair value hedge accounting.

(*3) The Group designated its long-term borrowings denominated in foreign currencies as hedging instruments to hedge the fluctuations of foreign currency denominated sales as at December 31, 2014.

(*4) Represents amounts related to the exchange rights on exchangeable bonds issued by the Company and the valuation of the share purchase contract between the Company and the shareholders of redeemable convertible preferred stock issued by DEC.

Derivative financial instruments are classified as non-current assets (liabilities) if the remaining time to maturity from the reporting date is over 12 months; otherwise, they are classified as current assets (liabilities).

9-2. Option contract given to financial investors

DEC, a subsidiary, participated in SOC projects and other infrastructure projects including Shinbundang Line, Shinbundang extension Line, Daegu 4th beltway, Masan Sewer Pipeline BTL, Suwon-Gwangmyeong Road, Gwanggyo Power Center, etc. as a construction investor. To invite financial investors, DEC entered into a put option contract (￦32,000 million). DEC classified the contract as financial derivatives and recognized the fluctuation of option value as loss on valuation of derivatives (2015: ￦6,955 million, 2014: ￦682 million) and derivatives liabilities (2015: ￦6,800 million, 2014: 167 million).

45


9. Derivative financial instruments (cont’d) 9-3. In connection with the issuance of redeemable convertible preferred shares by DEC, the Company entered into a contract with preferred shareholders. The details of contract are as follows: Description Settlement The Company and the investor shall settle the contract in cash for the amount of

the net selling price less issuance price on December 16, 2016. If the settlement amount is positive (net selling price exceeds issuance price) the investor pays the amount to the Company; otherwise, the Company makes payment to the investor.

Early settlement

The investor, under certain circumstances, may request a settlement to the Company even before the settlement date, for the amount calculated by the same method as above.

Early call option

The Company may request, from September 14 to 16, 2015, for the purchase of up to 30% of the redeemable convertible preferred stock owned by the investor at the issuance price plus a certain level of incentive.

Settlement call option

The Company may request, from September 14 to 16, 2016, for the purchase of a whole or part of the redeemable convertible preferred stock owned by the investor, at the issuance price.

The Group recognized the fair value of above contracts between shareholders as derivative financial instruments as at December 31, 2015.

10. Categories of financial instruments

10-1. Financial assets as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 Financial assets at fair value through profit or

loss Loans and receivables

Available-for-sale financial

assets

Held-to-maturity financial assets

Derivatives designated as hedging instruments Carrying amount Fair value

Cash and cash equivalents ￦ - ￦ 1,893,008 ￦ - ￦ - ￦ - ￦ 1,893,008 ￦ 1,893,008

Short and long-term financial instruments

-

553,225

-

-

-

553,225

553,225

Short and long-term investments in securities

-

-

182,511

8,350

-

190,861

190,861

Derivative financial assets 36,476

- - - 51,929 88,405 88,405 Trade and other receivables - 4,225,543 - - - 4,225,543 4,225,543

Deposits - 253,323 - - - 253,323 253,323

￦ 36,476 ￦ 6,925,099 ￦ 182,511 ￦ 8,350 ￦ 51,929 ￦ 7,204,365 ￦ 7,204,365

46


10. Categories of financial instruments (cont’d)

2014 Financial assets at fair value through profit or

loss Loans and receivables

Available-for-sale financial

assets


Derivatives designated as hedging instruments Carrying amount Fair value

Cash and cash equivalents ￦ - ￦ 1,297,560 ￦ - ￦ - ￦ - ￦ 1,297,560 ￦ 1,297,560

Short and long-term financial instruments

-

676,194

-

-

-

676,194

676,194

Short and long-term investments in securities

-

-

183,017

36,310

-

219,327

219,327

Derivative financial assets 12,102 - - - 53,152 65,254 65,254

Trade and other receivables - 4,284,485 - - - 4,284,485 4,284,485

Deposits - 309,024 - - - 309,024 309,024

￦ 12,102 ￦ 6,567,263 ￦ 183,017 ￦ 36,310 ￦ 53,152 ￦ 6,851,844 ￦ 6,851,844

10-2. Financial liabilities as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 Financial

liabilities at fair value through profit or loss

Financial liabilities measured at

amortized cost

Derivatives designated as

hedging instruments Carrying amount Fair value

Trade and other payables ￦ - ￦ 3,099,574 ￦ - ￦ 3,099,574 ￦ 3,099,574 Borrowings and debentures - 12,570,556 - 12,570,556 12,570,556 Derivative financial liabilities 36,542 - 328,537 365,079 365,079

Financial guarantee liabilities - 22,699 - 22,699 22,699

Others - 539,716 - 539,716 539,716

￦ 36,542 ￦ 16,232,545 ￦ 328,537 ￦ 16,597,624 ￦ 16,597,624

2014

Financial liabilities at fair value through profit or loss

Financial liabilities measured at

amortized cost

Derivatives designated as

hedging instruments Carrying amount Fair value

Trade and other payables ￦ - ￦ 3,463,000 ￦ - ￦ 3,463,000 ￦ 3,463,000

Borrowings and debentures - 11,646,079 - 11,646,079 11,646,079

Derivative financial liabilities 69,291 - 245,125 314,416 314,416 Financial guarantee liabilities - 220,322 - 220,322 220,322

Others - 535,667 - 535,667 535,667

￦ 69,291 ￦ 15,865,068 ￦ 245,125 ￦ 16,179,484 ￦ 16,179,484

10-3. The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique. The level of hierarchy of fair value is as follows:

Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices that are observable for the asset or liability either directly or

indirectly. Level 3: Inputs that are not based on observable market data (unobservable inputs).

47


10. Categories of financial instruments (cont’d) The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. These instruments are included in Level 1. Instruments included in level 1 primarily comprise listed equity investments classified as trading securities or available-for-sale.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

Specific valuation techniques used to value financial instruments include:

Quoted or dealer price of similar instruments. The fair value of forward foreign exchange contracts determined by using forward exchange rates at

the reporting date, with the resulting value discounted to present value. Other financial techniques such as discounted cash flow analysis.

As for trade and other receivables, the book value approximates reasonable estimates of fair value.

The level of fair value measurements of financial instruments as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 Level 1 Level 2 Level 3 Total

Financial assets measured at fair value: Financial assets at fair value through profit or loss ￦ - ￦ 36,476 ￦ - ￦ 36,476

Available-for-sale financial assets 2,781 - 126,385 129,166 Derivatives designated as hedging instruments - 51,929 - 51,929

￦ 2,781 ￦ 88,405 ￦ 126,385 ￦ 217,571

Financial liabilities measured at fair value: Financial liabilities at fair value through profit or loss - 36,542 - 36,542

Derivatives designated as hedging instruments - 328,537 - 328,537

￦ - ￦ 365,079 ￦ - ￦ 365,079

2014

Level 1 Level 2 Level 3 Total Financial assets measured at fair value:

Financial assets at fair value through profit or loss ￦ - ￦ 12,102 ￦ - ￦ 12,102

Available-for-sale financial assets 986 - 130,721 131,707 Derivatives designated as hedging

instruments - 53,152 - 53,152 ￦ 986 ￦ 65,254 ￦ 130,721 ￦ 196,961

Financial liabilities measured at fair value: Financial liabilities at fair value through profit or loss - 69,291 - 69,291 Derivatives designated as

hedging instruments - 245,125 - 245,125 ￦ - ￦ 314,416 ￦ - ￦ 314,416

The above tables exclude financial assets and financial liabilities which are not measured at fair value as differences between the carrying amounts and fair values are not significant.

48


10. Categories of financial instruments (cont’d) Assumptions used for the measurement of available-for-sale financial assets at fair value based on level 3 valuation techniques as at December 31, 2015 are as follows (Korean won in millions):

Valuation techniques Discount rate Note Incheon-Kimpo

Expressway Co., Ltd.and others

Fair value as a current exit price model -

Current share issuance

amount Daegu South

Circulation Road Corporation and others

Dividend discount model and others 7.00%~14.00%

Expected dividend cash flow for each financial

period and others

Korea Housing Guarantee Co., Ltd.

Shareholder’s discounted cash flow model 10.00%

Shareholder’s cash flow

Others

Net asset value assessment and others - Fair value of net asset

and others

Changes in the carrying amount of available-for-sale financial assets measured at fair value based on level 3 valuation techniques for the years ended December 31, 2015 and 2014 are as follows: (Korean won in millions)

Total comprehensive income

January 1 Buy Sell

Profit for the year

Other comprehens-ive income

Net foreign exchange difference December 31

2015 ￦ 130,721 ￦ 7,141 ￦ (11,553) ￦ - ￦ 60 ￦ 16 ￦ 126,385 2014 122,961 7,091 (1,401) - 2,070 - 130,721

10-4. Gains or losses on financial instruments for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015

Profit or loss

Other comprehensive

income (loss) (*1)

Interest income

(expense) Dividend income

(Reversal of) allowance for

doubtful accounts

Impairment loss on financial

instruments Gain or loss on disposal

Gain or loss on financial guarantee

Net change in fair value of available-for-sale financial

assets Financial assets:

Trade and other receivables ￦ 43,712 ￦ - ￦ (556,435) ￦ - ￦ (13,935) ￦ - ￦ -

Deposits - - 142 - - - -Available-for-

sale financial assets 371 1,646 - (708) 11,275 - (3,404)


1,116

- - - -

-

-

￦ 45,199 ￦ 1,646 ￦ (556,293) ￦ (708) ￦ (2,660) ￦ - ￦ (3,404)Financial

liabilities: Financial

liabilities carried at

amortized cost

￦ (629,790) ￦ - ￦ - ￦ - ￦ (1,938) ￦ (18,268)

￦ -

(*1) Amounts in other comprehensive income or loss exclude deferred tax effect.

49



2014

Profit or loss

Other comprehensive

income (loss) (*1)

Interest income

(expense) Dividend income

(Reversal of) allowance for

doubtful accounts

Impairment loss on financial

instruments Gain or loss on disposal

Gain or loss on financial guarantee

Net change in fair value of available-for-sale financial

assets Financial assets:

Trade and other receivables ￦ 51,985 ￦ - ￦ (165,626) ￦ - ￦ (23,440) ￦ - ￦ -

Deposits - - 9 - - - -Available-for-sale financial assets

1,463

537

- (7,285) 30

-

1,911


2,199

-

- - -

-

-

￦ 55,647 ￦ 537 ￦ (165,617) ￦ (7,285) ￦ (23,410) ￦ - ￦ 1,911 Financial liabilities:

Financial liabilities carried at

amortized cost

￦ (639,638) ￦ -

￦ - ￦ - ￦ (38,359) ￦ (20,842)

￦ -

(*1) Amounts in other comprehensive income or loss exclude deferred tax effect.

Gains or losses on translation or transaction of foreign currencies arising from foreign currency transactions except for derivative financial instruments have been mostly incurred from financial assets classified as loans and receivables and financial liabilities measured at amortized cost.

Details of gains and losses on valuation and settlement of derivative financial instruments for the years ended December 31, 2015 and 2014 is as follows (Korean won in millions):

2015 Gain (loss) on valuation of

derivative financial instruments

Gain (loss) on settlement of derivative financial

instruments Other comprehensive

income (loss) (*1) Derivatives held for trading ￦ 64,549 ￦ 8,858 ￦ -Fair value hedge derivatives (232,199) (18,466) -Cash flow hedge derivatives (8,145) 28,258 15,254

￦ (175,795) ￦ 18,650 ￦ 15,254

(*1) Other comprehensive income or loss does not reflect the deferred tax effect.

2014 Gain (loss) on valuation

of derivative financial instruments

Gain (loss) on settlement of derivative financial

instruments Other comprehensive

income (loss) (*1) Derivatives held for trading ￦ (70,597) ￦ 18,645 ￦ -Fair value hedge derivatives (76,110) 3,688 -Cash flow hedge derivatives (42,728) (20,933) (6,041)

￦ (189,435) ￦ 1,400 ￦ (6,041)

(*1) Other comprehensive income or loss does not reflect the deferred tax effect.

50



Above gains or losses on financial instruments include amounts in selling and administrative expenses, finance income or cost and other comprehensive income or loss. Gains or losses from translation or transaction of foreign currencies arising from foreign currency transactions, except for derivative financial instruments, have been mostly incurred from financial assets classified as loans and receivables and financial liabilities measured at amortized cost.

10-5. Financial assets and financial liabilities subject to an enforceable master netting arrangement or similar agreement as at December 31, 2015 are as follows (Korean won in millions):

Eligible for legal right to offset Total assets (liabilities) Offset amount Amount after offset

Derivative financial instrument assets ￦ 110,893 ￦ (46,598) ￦ 64,295 Derivative financial instrument liabilities (312,165) 46,598 (265,567)

11. Share of investments in associates and joint ventures

11-1 Details of share of investments in associates and joint ventures as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Acquisition cost Book value Net assets

Country of

domicile

Equity ownership (%) 2015 2014 2015 2014 2015 2014

Associates:

Doosan Capital Co., Ltd. (*1) Korea - ￦ - ￦ 166,000 ￦ - ￦ 48,902 ￦ - ￦ 38,905 Tamra Offshore

Wind Power Co., Ltd. (“Tamra”) Korea 36.00 9,864 9,864 9,617 9,673 9,617 9,673

Doosan (China) Financial Leasing Corp. (“DCFL”) (*2) China - - 96,248 - 96,996 - 83,783

Dalian Samyoung Doosan Metal Product Co., Ltd. (“DSDMP”) (*3) China 10.80 2,675 2,675 3,453 3,647 3,453 3,647

Shinbundang Railroad Co., Ltd. (*4) Korea 29.03 62,552 62,552 26,770 46,538 26,770 46,538

Kyunggi Railroad Co., Ltd. Korea 7.91 7,067 7,067 5,277 5,737 5,277 5,737

Neo Trans Co., Ltd. Korea 42.86 43 43 15,429 13,335 15,429 13,335 New Seoul Railway Corporation Korea 32.65 1,373 1,373 611 727 409 525

Others - 2,489 2,707 - - - (209)

86,063 348,529 61,157 225,555 60,955 201,934

Joint ventures: Haman Industrial Complex (*5) Korea 80.00 3,600 3,600 - 1,190 (2,040) 1,190 Xuzhou Xugong Doosan Engine Co., Ltd. (“Xuzhou”) China 50.00 16,232 16,232 - - - -

Doosan PSI LLC (*6) USA 50.00 1,108 - 1,254 - 1,254 -

20,940 19,832 1,254 1,190 (786) 1,190

￦ 107,003 ￦ 368,361 ￦ 62,411 ￦ 226,745 ￦ 60,169 ￦ 203,124

(*1) Investments in the investee were disposed in 2015. (*2) The investee has been included as a subsidiary as the Company acquired control over the investee

during the year 2015. (*3) Although the Group’s equity interest in the investee is less than 20%, the investee is classified as an

associate considering the exercise of voting rights in the board of directors. (*4) Investments in the investee have been provided as collateral in connection with project financing. (*5) Although the Group’s equity interest in the investee is more than 50%, the investee is classified as a

joint venture considering the agreement between the shareholders. (*6) The investee is classified as a joint venture as the decisions about the investee’s operations or

financial policies require the consent of other equity holders.

51


11. Share of investments in associates and joint ventures (cont’d) 11-2. Changes in share of investments in associates and joint ventures for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015

January 1 Acquisition (disposal)

Dividend received

Share of profit (loss)

(*1)

Changes in equity

adjustments Others December

31

Associates: Doosan Capital Co., Ltd. ￦ 48,902 ￦ (6,613) ￦ - ￦ (42,389) ￦ 100 ￦ - ￦ -

Tamra 9,673 - - (56) - - 9,617 DCFL 96,996 - - (19,137) - (77,859) -DSDMP 3,647 - - (230) 36 - 3,453 Shinbundang Railroad Co., Ltd. 46,538 - - (19,768) - - 26,770 Kyunggi Railroad Co., Ltd. 5,737 - - (460) - - 5,277

Neo Trans Co., Ltd. 13,335 - - 2,094 - - 15,429 New Seoul Railway Corporation 727 - - (116) - - 611

225,555 (6,613) - (80,062) 136 (77,859) 61,157

Joint ventures: Haman Industrial Complex 1,190 - - (1,190) - - -

Doosan PSI LLC - 1,108 - 79 - 67 1,254 1,190 1,108 - (1,111) - 67 1,254

￦ 226,745 ￦ (5,505) ￦ - ￦ (81,173) ￦ 136 ￦ (77,792) ￦ 62,411

(*1) The above income on equity method investments includes loss on disposal of investment in

associates amounting to￦40,935 million. With respect to changes in equity interest resulting from increase in paid-in capital of associates, the Group recognized income on an equity method investments amounting to￦509 million.

2014

January 1 Acquisition(disposal)

Dividendreceived

Share of profit (loss)

(*1)

Changes in equity

adjustments Others December

31

Associates: Doosan Capital

Co., Ltd. ￦ 105,511 ￦ - ￦ - ￦ (57,909) ￦ 1,300 ￦ - ￦ 48,902

Tamra 9,622 - - 51 - - 9,673DCFL 101,371 - - (5,790) - 1,415 96,996DSDMP 3,390 - - 197 60 - 3,647Shinbundang

Railroad Co., Ltd. 67,785 - - (21,247) - - 46,538Kyunggi Railroad Co., Ltd. 4,946 18 - 773 - - 5,737Neo Trans Co., Ltd. 10,745 - - 2,590 - - 13,335New Seoul

Railway Corporation

776 250 - (299) - - 727

Others 25 (25) - 212 - (212) -

304,171 243 - (81,422) 1,360 1,203 225,555

Joint ventures: Haman Industrial Complex 2,394 - - (1,204) - - 1,190Hanjung Power Ltd. 6,066 (6,066) (1,494) 2,767 (1,103) (170) -Doosan Babcock WLL 290 - - - - (290) -

8,750 (6,066) (1,494) 1,563 (1,103) (460) 1,190￦ 312,921 ￦ (5,823) ￦ (1,494) ￦ (79,859) ￦ 257 ￦ 743 ￦ 226,745

52


11. Share of investments in associates and joint ventures (cont’d) (*1) The above income on equity method investments includes on equity method investments included net

gain on disposal of investment in associates amounting to ￦2,979 million. With respect to changes in equity interest resulting from increase in paid-in capital of associates, the Group recognized income on an equity method investments amounting to ￦1,204 million.

11-3. Summarized financial information of associates and joint ventures as at and for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015

Company Asset Liability Sales Profit (loss) for the year


Tamra ￦ 90,810 ￦ 64,095 ￦ - ￦ (154) ￦ (154)DSDMP 49,609 17,637 21,986 (2,129) (1,799)Shinbundang Railroad Co., Ltd. 1,009,219 917,002 59,663 (68,094) (68,094)Kyunggi Railroad Co., Ltd. 577,382 510,694 - (12,115) (12,115)Neo Trans Co., Ltd. 44,655 8,656 57,487 4,886 4,886 New Seoul Railway 5,223 3,971 - (357) (357)Haman Industrial Complex Corporation 24,866 27,416 131 (835) (835)

Doosan PSI LLC 3,860 1,353 4,855 158 158

2014

Company Asset Liability Sales Profit (loss) for the year


Doosan Capital Co., Ltd. ￦ 1,661,977 ￦ 1,502,567 ￦ 85,809 ￦ (118,784) ￦ (115,034)Tamra 26,880 12 - 93 93 DCFL 789,214 618,229 45,660 (10,020) (7,119)DSDMP 54,149 20,378 25,813 1,824 2,377 Shinbundang Railroad Co., Ltd. 1,045,533 885,221 56,004 (73,188) (73,188)Kyunggi Railroad Co., Ltd. 290,498 246,577 - (3,318) (3,318)Neo Trans Co., Ltd. 35,546 4,433 47,226 6,044 6,044 New Seoul Railway Corporation 5,280 3,671 - (976) (976)Haman Industrial Complex 50,281 48,793 10,525 (446) (446)

53


11. Share of investments in associates and joint ventures (cont’d) 11-4. The following table provides a reconciliation of the summarized financial information of the associates and joint ventures to the carrying amount of its interest in the associates and joint ventures (Korean won in millions):

2015

Company (*1) Net asset

(a)

Equity ownership

(%) (b)

Equity interest in

the investee (axb)

Adjustment amount

Book valueDifferenceInternal

transaction Others

Associates:

Tamra ￦ 26,715 36.00 ￦ 9,617 ￦ - ￦ - ￦ - ￦ 9,617

DSDMP 31,972 10.80 3,453 - - - 3,453 Shinbundang Railroad Co., Ltd. 92,217 29.03 26,770 - - - 26,770

Kyunggi Railroad Co., Ltd. 66,689 7.91 5,277 - - - 5,277

Neo Trans Co., Ltd. 35,999 42.86 15,429 - - - 15,429

New Seoul Railway 1,252 32.65 409 202 - - 611

254,844 60,955 202 - - 61,157

Joint ventures:

Doosan PSI LLC 2,507 50.00 1,254 - - - 1,254

￦ 257,351 ￦ 62,209 ￦ 202 ￦ - ￦ - ￦ 62,411

(*1) Adjustments on Haman Industrial Complex were not included as the Company discontinued recognizing its share of further losses.

2014

Company Net asset (a)

Equity ownership

(%) (b)

Equity interest in

the investee (axb)

Adjustment amount

Book valueDifference Internal

transaction Others

Associates: Doosan Capital Co., Ltd. (*1) ￦ 76,124 33.30 ￦ 38,905 ￦ 9,997 ￦ - ￦ - ￦ 48,902

Tamra 26,868 36.00 9,673 - - - 9,673

DCFL 170,985 49.00 83,783 13,213 - - 96,996

DSDMP 33,771 10.80 3,647 - - - 3,647 Shinbundang Railroad Co., Ltd. 160,312 29.03 46,538 - - - 46,538

Kyunggi Railroad Co., Ltd. 43,921 13.06 5,737 - - - 5,737

Neo Trans Co., Ltd. 31,113 42.86 13,335 - - - 13,335

New Seoul Railway Corporation 1,609 32.65 525 202 - - 727

Others (209) - (209) - - 209 -

544,494 201,934 23,412

-

209 225,555

Joint ventures: Haman Industrial Complex 1,488 80.00 1,190 - - - 1,190

￦ 545,982 ￦ 203,124 ￦ 23,412 ￦ - ￦ 209 ￦ 226,745

54


11. Share of investments in associates and joint ventures (cont’d) (*1) The net asset value of Doosan Capital represents only the equity holders of the parent and the equity

interest in the investee was calculated by adding up the equity ownership of preferred shares.

12. Property, plant and equipment 12-1. Changes in the net book value of property, plant and equipment for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015

Land Buildings & structures Machinery Others

Construction-in-progress Total

As at January 1 ￦ 4,072,078 ￦ 1,613,155 ￦ 1,062,511 ￦ 228,076 ￦ 214,320 ￦ 7,190,140 Acquisitions / capital expenditure 138,447 6,803 29,807 34,746 239,161 448,964

Transfer (120,719) (11,938) 127,831 19,862 (225,321) (210,285)

Disposals (12,982) (11,930) (11,453) (3,842) - (40,207)

Depreciation - (86,622) (208,008) (75,680) - (370,310)

Impairment loss (746) (73,207) (38,326) (17,336) - (129,615)

Revaluation 473,623 - - - - 473,623

Business transfer and others (129,337) (17,292) (12,434) (378) (116) (159,557)Changes in foreign currency translation (4,742) 7,206 503 554 304 3,825

As at December 31 ￦ 4,415,622 ￦ 1,426,175 ￦ 950,431 ￦ 186,002 ￦ 228,348 ￦ 7,206,578

Acquisition cost 2,862,653 2,350,329 2,872,214 766,878 228,348 9,080,422Accumulated depreciation and impairment loss (1,224) (924,154) (1,921,783) (580,876) - (3,428,037)

Accumulated gain on revaluation of land 1,554,193 - - - - 1,554,193

2014

Land Buildings & structures Machinery Others

Construction-in-progress Total

As at January 1 ￦ 4,082,326 ￦ 1,583,684 ￦ 1,122,030 ￦ 239,122 ￦ 204,662 ￦ 7,231,824 Acquisitions / capital expenditure 749 31,975 79,956 46,825 217,756 377,261

Transfer 300 98,725 104,040 24,498 (206,511) 21,052

Disposals (3,286) (1,865) (10,708) (1,666) (277) (17,802)

Depreciation - (87,505) (219,342) (79,818) - (386,665)

Impairment loss (2,224) (8,244) (1,118) (657) - (12,243)Changes in foreign currency translation (5,787) (3,615) (12,347) (228) (1,310) (23,287)

As at December 31 ￦ 4,072,078 ￦ 1,613,155 ￦ 1,062,511 ￦ 228,076 ￦ 214,320 ￦ 7,190,140

Acquisition cost 2,939,989 2,421,844 2,876,330 764,364 214,320 9,216,847 Accumulated depreciation and impairment loss (2,335) (808,689) (1,813,819) (536,288) - (3,161,131)Accumulated gain on revaluation of land 1,134,424 - - - - 1,134,424

As at December 31, 2015, certain property, plant and equipment have been pledged as collateral for borrowings (See Note 34).

55


12. Property, plant and equipment (cont’d) 12-2. Capitalized borrowing costs for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Capitalized borrowing costs ￦ 2,135 ￦ 3,572 Interest rate of borrowing costs 3.88% ~ 4.49% 4.32% ~ 4.59%

12-3. Details of depreciation on property, plant and equipment for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Cost of sales ￦ 320,747 ￦ 330,559 Selling and administrative expenses 28,247 38,568 Research and development costs and others 20,158 14,822 Profit for the year from a discontinued operation 1,158 2,716

￦ 370,310 ￦ 386,665

12-4. Revaluation of land

The Group engaged an accredited independent valuation specialist to determine the fair value of its land and the date of the revaluation was October 31, 2015.

Fair value of the land was determined based on Officially Assessed Reference Land Price (OARLP) and the final appraised value was determined by the following procedures; i) remark a sales comparable, which is identical or similar to the subject property, in accordance with principles of marketability and replacement, ii) calculate the reference land price by using the sales comparison approach, and iii) review whether the valuation based on OARLP is appropriate.

The OARLP approach is one of valuation methods, which assess the price of property by modifying the time in line with the fluctuation rate of land price based on the comparable OARLP of nearby area and considering all elements of valuation factors such as locations, conditions of nearby land price, accessibility, shape and scale of parcel, road and traffic conditions, restrictions under public law, general demand, marketability and others. Other elements such as the rates of difference between the subject property and precedential appraisals, land price in nearby area and real estate business trends are also considered.

The carrying amount of land measured using the cost model is ￦2,861,429 million as at December 31, 2015.

Changes in other comprehensive income from revaluation of land are as follows (Korean won in millions):

2015 2014 As at January 1 ￦ 734,366 ￦ 734,444 Increase in accumulated OCI from revaluation of land 471,211 (253)Tax effect of accumulated OCI from revaluation of land (111,463) 61 Disposal of land revalued (17,159) -Non-controlling interests (62,283) 114 As at December 31 ￦ 1,014,672 ￦ 734,366

Gain on the revaluation of land which is reflected in the profit for the year is ￦2,412 million.

56


13. Intangible assets 13-1. Changes in the net book value of intangible assets for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015

Goodwill

Industrial property

rights Development

costs Others Total As at January 1 ￦ 4,558,361 ￦ 1,148,142 ￦ 898,549 ￦ 258,293 ￦ 6,863,345 Acquisitions / capital expenditures - 2,221 236,168 15,568 253,957 Transfer - 207 (7,181) 45,861 38,887 Disposals - (10) - (2,429) (2,439)Business transfer and others (63,179) - - - (63,179)

Amortization - (17,270) (123,613) (73,361) (214,244)Impairment (42,112) - (121,759) (32,959) (196,830)Changes in foreign currency translation (59,423) 25,392 9,990 2,318 (21,723)

As at December 31 ￦ 4,393,647 ￦ 1,158,682 ￦ 892,154 ￦ 213,291 ￦ 6,657,774

Acquisition cost 4,433,884 1,307,086 1,575,243 775,001 8,091,214 Amortization and accumulated impairment loss (40,237) (148,404) (683,089) (561,710) (1,433,440)

2014

Goodwill Industrial

property rightsDevelopmen

t costs Others Total As at January 1 ￦ 4,680,873 ￦ 1,176,404 ￦ 768,636 ￦ 298,670 ￦ 6,924,583 Acquisitions / capital expenditures - 1,338 238,528 20,830 260,696

Transfer - - (2,861) 16,134 13,273

Disposals - (12) (184) (3,327) (3,523)

Amortization - (18,161) (92,131) (72,585) (182,877)

Impairment - - (12,302) (801) (13,103)Changes in foreign currency translation (122,512) (11,427) (1,137) (628) (135,704)As at December 31 ￦ 4,558,361 ￦ 1,148,142 ￦ 898,549 ￦ 258,293 ￦ 6,863,345 Acquisition cost 4,558,361 1,289,373 1,295,589 720,244 7,863,567 Amortization and accumulated impairment loss - (141,231) (397,040) (461,951) (1,000,222)

The carrying amounts of intangible assets with indefinite useful lives including goodwill and others as at December 31, 2015 and 2014 amounted to ￦5,564,098 million and ￦5,704,519 million, respectively.

13-2. Research and development costs expensed as incurred for the years ended December 31, 2015 and 2014 amounted to ￦332,123 million and ￦295,176 million, respectively.

13-3. Capitalized borrowing costs for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Capitalized borrowing costs ￦ 9,051 ￦ 9,574 Interest rate of borrowing costs 3.88% ~ 4.49% 4.32% ~ 4.59%

57


13. Intangible assets (cont’d) 13-4. Details of amortization on intangible assets for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Cost of sales ￦ 134,264 ￦ 104,905 Selling and administrative expenses 79,282 77,319 Research and development costs and others 568 357 Profit from a discontinued operation 130 296

￦ 214,244 ￦ 182,877

13-5. Carrying amount of goodwill allocated to each cash-generating unit (“CGU”) as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Power generation ￦ 619,106 ￦ 627,490 Water 6,803 6,441 DEC 72,781 81,300 DI 3,694,957 3,843,130

￦ 4,393,647 ￦ 4,558,361

The recoverable amount of CGU is determined based on a value in use calculation, and major assumptions used as at December 31, 2015 are as follows:

Power

generation Water DEC DI Long-term average growth rate 2.00% 2.00% 1.50% 2.0%~2.5% Discount rate 8.50% 6.92% 9.50% 8.60%~11.90%

A value in use is calculated using pre-tax cash flow projections based on financial budgets approved by senior management covering a five-year period. The management assessed the total profit in the budget based on past performances and market growth forecasts. Cash flows beyond the five-year period are extrapolated using a forecast growth rates, which do not exceed the long-term average growth rate for the industry where the CGU operates in and which are consistent with estimations included in industry reports. The discount rate used is risk adjusted discount rate that reflects relevant risks specific to the related operating segment.

DI, one of subsidiaries, has recognized an impairment loss on goodwill, allocated to Doosan Infracore Norway AS as the carrying amount of ￦37,761 million exceeded the recoverable amounts. Another subsidiary, DEC has recognized impairment loss on goodwill of ￦4,441 million as a result of curtailment on its CPE segment. Other than recognized impairment losses mentioned aforehand, the Group has not recognized any impairment loss since the recoverable amount of each CGU, calculated based on value in use, exceeds the carrying amount of goodwill as at December 31, 2015. The recoverable amount may change according to changes in key assumptions. Accordingly, the Group’s management regularly observes relevant turnovers and industrial trends.

58


14. Investment properties Changes in investment properties for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 Land Buildings Total

As at January 1 ￦ 37,952 ￦ 30,211 ￦ 68,163 Acquisitions / capital expenditures 3,660 257 3,917 Transfer (13,743) (23,886) (37,629)Disposals (1,512) (1,172) (2,684)Depreciation - (1,251) (1,251)As at December 31 ￦ 26,357 ￦ 4,159 ￦ 30,516 Acquisition cost 26,357 9,268 35,625 Accumulated depreciation and impairment loss - (5,109) (5,109)

2014

Land Buildings Total As at January 1 ￦ 38,635 ￦ 31,305 ￦ 69,940 Transfer - (105) (105)Disposals (683) - (683)Depreciation - (989) (989)As at December 31 ￦ 37,952 ￦ 30,211 ￦ 68,163 Acquisition cost 39,156 40,308 79,464 Accumulated depreciation and impairment loss (1,204) (10,097) (11,301)

Rental income from investment properties for the years ended December 31, 2015 and 2014 are ￦2,070 million and ￦2,088 million, respectively.

59


15. Debentures and borrowings 15-1. Short-term borrowings as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Type of borrowings

Borrower (*1) Lender

Annual interest rate (%) as at December 31,

2015 2015 (*3) 2014 Borrowings denominated in Korean

won

The Company Kookmin Bank 3.25 ￦ 30,000 ￦ 30,000

Nonghyup Bank 3.38 ~ 3.56 150,000 50,000 Shinhan Bank 2.86 ~ 3.04 100,000 50,000 Woori Bank 3.42 ~ 3.92 250,000 50,000KDB 3.36 ~ 3.84 300,000 200,000 Korea EXIM Bank 2.64 ~ 3.00 268,081 57,517 Kyungnam Bank 3.52 20,000 -Daegu Bank 3.31 ~ 3.40 40,000 -Jeonbuk Bank 3.3 10,000 -

Factoring (*2) - 23,008 22,158

DI Korea Exim Bank

and others 2.32 ~ 5.99 534,000

388,500 DEC Shinhan Bank - - 9,900

Nonghyup Bank 7.82 20,000 29,000 KEB Hana Bank and others 3.35 ~ 6.71 56,833 108,511

KDB 5.54 ~ 5.72 59,000 43,000 Construction Guarantee Cooperative 1.4 24,215 24,215

Woori Bank 3.76 ~ 6.97 228,000 242,219 Industrial Bank of Korea (IBK) 11.74 15,160 19,000

Korea Exim Bank 5.55 ~ 6.97 57,300 59,768 Woori Investment Bank and others 7.50 ~ 8.02 21,000 6,000

Kabul Construction Co., Ltd. 6.9 100 100

Factoring (*2) - 76,690 23,547DE Nonghyup Bank 3.52 10,000 -

Kookmin Bank 4.05 10,000 -Woori Bank 4.05 30,000 -

Borrowings denominated in foreign currencies

The Company HSBC 2.00 ~ 11.3 109,871 27,404

ICICI 11.25 38,786 30,345 JP Morgan 3M Libor + 1.5 5,860 5,496KBC - - 51,314SCB 2.00 ~ 11.7 72,180 24,680

3M Libor + 2.6 Vietcombank 5.8 23,414 -

3M Libor + 1.7 Kookmin Bank 3M Libor + 2.0 4,688 -Shinhan Bank 3.1 ~ 10.75 8,762 11,821

3M Libor + 2.0 Woori Bank 0.4 ~ 0.5 103,791 72,835

3M Libor + 1.5 ~ 2.2 KDB and others 0.4 ~ 3.5 243,647 230,003

3M Euribor + 2.75 ~ 3.5Korea Exim Bank 3M Libor + 1.8 ~ 2.1 149,969 222,201

LIBOR + 1.8 3M Euribor + 2.0

KEB Hana Bank 3M Libor + 2.7 ~ 2.8 66,070 32,951 3M Libor + 350bps

6M Libor + 2.05

60


15. Debentures and borrowings (cont’d)

Type of borrowings


Annual interest rate (%) as at December 31,

2015 2015 (*3) 2014 DI KDB and others 1.80 ~ 9.25 ￦ 534,180 ￦ 566,481

Woori Bank and others 0.72 ~ 2.00 103,787 171,090 Disposal of bonds in

foreign currency (*2) - 84,798 27,738

DEC KEB Hana Bank Libor + 0.80 ~

2.00 8,374 11,436 KDB Libor + 1.50 16,535 18,661

Woori Bank Libor + 1.00 ~

4.50 9,054 23,683 Shinhan Bank - - 328

Korea Exim Bank Libor + 1.50 ~

4.45 2,344 2,198 Asia Commercial Bank Libor + 2.00 2,867 4,916 Vietcombank Libor + 1.80 694 -

DE Factoring (*2) 1.36 ~ 1.38 6,304 3,857KEB Hana bank 4.65 ~ 5.80 8,819 9,944Korea Exim Bank Libor + 2.27 4,984 4,648

￦ 3,943,165 ￦ 2,967,465

(*1) Includes the Company’s overseas subsidiaries and their consolidated subsidiaries.

(*2) As discounting of commercial papers with recourse do not qualify for the derecognition of a financial instrument, the Group continues to recognize the related receivables and the related amounts received as short-term borrowings.

(*3) The Group’s PP&E and others have been pledged as collateral for the above borrowings (See Note 34).

15-2. Details of debentures as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Interest rate (%) as at December 31, 2015 2015 2014

Public subscription debentures 3.77~8.15 ￦ 2,532,788 ￦ 2,955,110 Private subscription debentures (*1) 3.90~8.50 340,000 380,000 Exchangeable bonds (See Note 15-3) 1.5 115,656 155,522 Convertible bonds (See Note 15-4) 3.2~4.00 311,112 200,000 Debentures denominated in foreign currencies (*2) 2.13~7.49 585,999 29,678

3,885,555 3,720,310 Less current portion (1,321,578) (694,004)Less discount on bonds payable (15,993) (16,507)

￦ 2,547,984 ￦ 3,009,799

(*1) The Group's PP&E and others have been pledged as collateral for the private subscription debentures (See Note 34).

(*2) The debentures denominated in foreign currencies are guaranteed by Korea Exim Bank (See Note 33).

15-3. The Company issued exchangeable bonds which exchange rights for equity shares in DEC. Details of the exchangeable bonds as at December 31, 2015 are as follows:

Issue date

Maturity date

Coupon rate YTM Exercise period Exchange price Issuance value Book value

June 14, 2011

June 14,

2016 1.50% 4.50% June 15, 2011 ~ May 14, 2016 ￦53,480/share

￦220,000 million ￦132,225

million

61



Early redemption The early redemption right is exercisable as a whole or in part against the face value of the exchangeable bonds at the interest payment date in three years after the date of issuance of bonds and every interest payment date is after every 6 months.

Redemption at maturity The coupon rate for the bond is 1.5%. For bonds not exchanged with equity shares in DEC by maturity, 116.72% of the principal amount will be paid on June 14, 2016 with a yield to maturity rate of 4.5%, compounded yearly.

Calculation of exchange price Pursuant to the bond subscription agreement, which there is an event resulting in an increase in issued capital without consideration, stock dividends or splits, or increase in issued capital at a price less than the market price during the period from the date of bond issuance through one month before maturity, the initial exchange price may be adjusted on the day before the event occurs. As at December 31, 2015, the exchange price is ￦53,480.

Changes in the carrying amount of exchangeable bond for the year ended December 31, 2015 are as follows (Korean won in millions):

January 1 Exercise

/Amortization December 31Exchangeable bonds ￦ 155,522 ￦ (39,866) ￦ 115,656

Redemption premium 25,998 (6,664) 19,334

Discount on bond (1,230) 937 (293)

Exchange rights adjustment (10,369) 7,897 (2,472)

Book value 169,921 (37,696) 132,225Consideration for exchange rights (Derivative financial liabilities) 3 (3) -

Exchange rights were not exercised in 2015 and the exchangeable bonds amounting to ￦39,866 million were redeemed by exercising the early redemption rights (the number of shares expired due to early redemption: 745,444 shares) for the year ended December 31, 2015.

15-4. Convertible bonds issued by DEC as at December 31, 2015 and 2014 are summarized as follows:

15-4-1. Convertible bonds issued in 2014 Issue date

Maturity date

Coupon rate YTM Exercise period Conversion price

Issuance value

Book value

Sep. 4, 2014

Sep. 4, 2017 4.00% 7.50%

From 1 month after date of issue to 1 month before maturity ￦8,190/share ￦190,798

million

￦173,407 million

Early redemption The early redemption right is exercisable as a whole or in part against the par value of convertible bonds at the interest payment date in 1.5 years and 2.5 years after the date of issuance of bonds.

Redemption at maturity The coupon rate for the bond is 4.0%. For bonds not converted until maturity, 111.6534% of the principal amount will be paid on Sep 4, 2017 with a yield to maturity rate of 7.5%, compounded quarterly.

62



Calculation of conversion price The conversion price is adjusted when there is an increase in paid-in capital through issuance of shares at a price lower than the market price, stock dividends, or capitalization of reserves, before exercising the conversion rights, or when there is an issuance of stock purchase warrants or debt securities with warrants.

15-4-2. Convertible bonds issued in 2015 Issue date

Maturity date

Coupon rate YTM Exercise period Conversion price

Issuance value

Book value

Jun. 11, 2015

Jun. 11, 2018 3.20% 6.50%

From 1 month after date of issue to 1 month before maturity ￦6,000/share ￦143,560

million

￦134,828 million

Early redemption The early redemption right is exercisable as a whole or in part against the par value of convertible bonds at the interest payment date in 2 years and 2.5 years after the date of issuance of bonds.

Redemption at maturity The coupon rate for the bond is 3.2%. For bonds not converted until maturity, 110.8345% of the principal amount will be paid on Jun. 11, 2018 with a yield to maturity rate of 6.5% compounded quarterly.

Calculation of conversion price The conversion price is adjusted when there is an increase in paid-in capital through issuance of shares at a price lower than the market price, stock dividends, or capitalization of reserves, before exercising the conversion rights, or when there is an issuance of stock purchase warrants or debt securities with warrants.

15-4-3. Changes in the carrying amount of convertible bonds for the year ended December 31, 2015 are as follows (Korean won in millions):

January 1 Issuance Exercise /

Amortization December 31 Convertible bond ￦ 200,000 ￦ 150,000 ￦ (38,888) ￦ 311,112 Redemption premium 23,307 16,252 (4,454) 35,105 Discount on bond (8,301) (6,440) 5,129 (9,612)Conversion rights adjustment (22,531) (20,432) 14,593 (28,370)Book value 192,475 139,380 (23,620) 308,235 Consideration for conversion rights (Other capital surplus) 1,669 4,180 (1,686) 4,163

During the year, 14.64% of the convertible bonds issued in 2014 and 6.41% of the convertible bonds issued in 2015 were converted.

63


15. Debentures and borrowings (cont’d) 15-5. Long-term borrowings as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Type of borrowings Borrower (*1) Lender

Annual interest rate (%) as at Dec.31,2015 2015 (*2) 2014

Borrowings denominated in Korean

won

The Company Kookmin Bank 3.9 ￦ 100,000 ￦ -Suhyup Bank 3.20 ~ 3.70 12,801 11,791 Hi Investment Securities 3.5 200,000 200,000 KDB 4.00 ~ 5.57 182,500 199,167 Korea Exim Bank 3.34 ~ 3.36 292,500 340,100 Korea Investment & Securities Co., Ltd. - - 100,000

NH Investment Securities - - 50,000

DI KDB 3.90 ~ 4.98 156,667 185,000 NH Investment Securities - - 50,000 Kyungnam Bank - - 40,000 TY Solution 1st and 6 others - - 145,000

Core Value 1st Co,.Ltd. and 2 others 4.77 100,000 200,000

Woori Bank 4.17 40,000 40,000 Busan Bank 4.32 4,000 12,000

DEC Shinhan Bank - - 419 La Union Co., Ltd. - - 35,000 Doosan E&C 1st Co., Ltd - - 110,000

Doosan E&C 2nd Co., Ltd. 6.46, CD + 4.73 102,000 -

Korea Housing Guarantee Cp,. Ltd. - - 7,267

Kookmin Bank 2.5 412 470 KEB Hana Bank - - 18,500

DE La Union Co., Ltd. - - 50,000 Nonghyup Bank MOR + 2.00 20,000 20,000 KDB 4.42 25,000 25,000

3M CD + 2.06 30,000 -Borrowings denominated in foreign currencies

The Company Arab Bank and Others 2.33 175,800 164,880 KDB 3M Euribor + 2.75 ~ 3.85 120,943 270,707 Korea EXIM bank Libor(3) + 6.0 268 46,961

National Bank of Abu Dhabi and

others 2.79 117,200 10,992

DI AKA Bank 6M Eulibor + 0.45 1,849 2,824 KDB 3M Libor + 3.50 77,352 54,960 3.99 ~ 4.06 Kookmin Bank 3M Libor + 3.10 29,300 32,976 Bank of China - - 19,786 KEB Hana Bank 3M Libor + 3.60 53,657 72,641 4.99 Shinhan Bank 6M Libor + 3.35 41,020 43,968 Korea Exim Bank 6M Libor + 4.30

720,780

687,000 3M Libor + 4.30 3M Libor + 2.76

JP Morgan and 3 others 3M Libor + 3.50 1,382,292 1,311,907

64



Type of borrowings


Annual interest rate (%) as at Dec.31,2015 2015 (*2) 2014

Innovasjon Norge 4.40 ￦ 3,870 ￦ 2,229 Bank of New York 8.00 4,981 4,672 Shell Brasil Petroleo Ltda - 370 517

SC Bank Beijing Branch 5.14 ~ 5.64 21,046 -Minsheng Financial leasing Co., Ltd. 5.23 ~ 6.30 66,241 -

Shenzhen Development Bank Hwangjing Branch 5.00 ~ 6.61 7,002 -

Guangda financial leasing Co., Ltd. 5.25 ~ 5.50 17,062 -

Xinda Financial Leasing Co., Ltd. 5.27 ~ 6.30 65,493 -

ICBC Beijing Chaoyang Branch 4.75 ~ 5.50 9,739 -

China Development Bank Financial Leasing Co., Ltd. 6.25 ~ 6.50 2,250 -

Woori Bank Beijing Branch 6.13 ~ 6.38 7,139 -

Far Eastern Leasing Co., Ltd 6.20 9,916 -

KDB Beijing Branch 5.14 ~ 5.64 26,772 -

DE China Construction Bank - - 1,591

4,228,222 4,568,325 Less current portion (916,961) (937,011)Less discount on borrowings (28,971) (33,688)

￦ 3,282,290 ￦ 3,597,626

(*1) Includes the Company’s overseas subsidiaries and their consolidated subsidiaries.

(*2) The Group’s PP&E and other assets have been pledged as collateral for the above borrowings (See Note 34).

15-6. Asset-backed loans

The Company and DEC issued asset-backed securities, through an SPE, collateralized by receivables from a range of construction projects.

Borrower Lender Maturity Discount rate (%) Amount The Company KDB Dec. 16. 2018 3.89 ￦ 115,000

Shinyoung securities Dec. 16. 2018 3.89 50,000 DEC Woori Bank Apr. 26. 2016 5.40 41,500

Yujin securities and others Mar. 30. 2016 7.80 69,500 Shinyoung securities and others Jan. 07. 2016 7.80 39,700 KDB capital and others Mar. 02. 2016 8.30 30,000 Shinyoung securities and others Jan. 08. 2016 7.80 33,000 Shinyoung securities and others Jan. 29. 2016 7.80 49,900 Korea asset securities and others Feb. 12. 2016 7.80 35,000 Kiwoom securities and others Jan. 07. 2016 6.49 45,000 KDB Sept. 15. 2017 8.59 40,000

548,600 Less current portion (396,100)Less discount on borrowings (2,092)

￦ 150,408

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16. Employee benefits liability

The Group operates a defined benefit plan, and the cost of providing benefit under the defined benefit plan is determined using the projected unit credit method on actuarial valuation of the present value of its defined benefit obligations.

16-1. Components of the employee benefit liability as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Present value of defined benefit obligations ￦ 2,318,673 ￦ 2,418,728 Fair value of plan assets (*1) (1,418,480) (1,398,119)Benefit liability per statement of financial position ￦ 900,193 ￦ 1,020,609

(*1) Include employer contributions amounting to ￦1,696 million and ￦2,191 million to the National Pension Service as at December 31, 2015 and 2014, respectively. 16-2. Expenses incurred in relation to the employee benefit liability, which are reflected in the statement of profit or loss, for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Current service cost ￦ 107,537 ￦ 108,252 Net interest expenses 38,415 43,113 Effect of curtailment and settlement 214 (10,116)

￦ 146,166 ￦ 141,249

16-3. Classification of expenses related to the employee benefit liability for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Cost of sales ￦ 78,246 ￦ 78,210 Selling and administrative expenses 51,406 46,975 Research and development costs 16,514 16,064 ￦ 146,166 ￦ 141,249

66


16. Employee benefits liability (cont’d) 16-4. Changes in the present value of the defined benefit obligations for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 As at January 1 ￦ 2,418,728 ￦ 2,134,005 Current service costs 107,537 108,252 Transfer from related parties 4,249 2,304 Transfer to related parties (7,431) (3,097)Interests 84,667 93,250 Remeasurement gain (loss) in OCI:

Actuarial changes arising from changes in demographic assumptions (43,318) 10,284 Actuarial changes arising from changes in financial assumptions (71,019) 206,975 Others 26,160 (702)

Effect of curtailment and settlement (8,895) (11,820)Contributions by plan participants 2,611 2,380 Benefits paid (253,398) (136,660)Others 58,782 13,557 As at December 31 ￦ 2,318,673 ￦ 2,418,728

16-5. Changes in the fair value of plan assets for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 As at January 1 ￦ 1,398,119 ￦ 1,203,614 Expected return on plan assets 46,252 50,137 Transfer from related parties 2,007 1,325 Transfer to related parties (2,972) (607)Remeasurement gain (loss) in OCI (50,998) 64,876 Contributions by plan participants 2,486 2,281 Contributions by employer 162,529 186,024 Benefits paid (162,830) (111,205)Effect of curtailment and settlement (7,117) (1,704)Others 31,004 3,378 As at December 31 ￦ 1,418,480 ￦ 1,398,119

In relation to the defined benefit plans, the reasonable estimates of future employer contributions during the year 2016 amounts to ￦143,591 million. In addition, the actual return on plan assets for the years ended December 31, 2015 and 2014 amounts to ￦(4,746) million and ￦115,013 million, respectively.

16-6. The principal assumptions used in determining employee benefit liability as at December 31, 2015 and 2014 are as follows:

2015 2014 Discount rate 2.60% ~ 7.73% 1.80% ~ 8.40% Future salary increase rate 2.00% ~ 8.00% 0.00% ~ 8.00%

67


16. Employee benefits liability (cont’d) 16-7. Components of plan assets as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Equity investments ￦ 561,525 ￦ 436,974 Korean government bonds 418,631 560,494 Trust assets and others 438,324 400,651

￦ 1,418,480 ￦ 1,398,119

The majority of the employee benefit plan consists of quoted securities in active markets.

16-8. Details of a sensitively analysis on the defined benefit obligation for changes in the significant assumptions as at December 31, 2015 are as follows (Korean won in millions):

Amount Ratio Discount rate:

1% increase ￦ (186,014) (8.02%)1% decrease 222,827 9.61%

Future salary increases: 1% increase 43,832 1.89%1% decrease (39,911) (1.72%)

16-9. The maturity profile of the defined benefit obligation as at December 31, 2015 is as follows (Korean won in millions):

Within the next 12 months

Between 1 and 2 years

Between 2 and 5 years

Between 5 and 10 years Total

Amounts ￦ 145,889 ￦ 199,743 ￦ 502,707 ￦ 825,836 ￦ 1,674,175

16-10. With regard to the defined contribution pension plans, the Group recognized expenses amounting to ￦17,696 million (2014: ￦22,807 million).

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17. Provisions Changes in significant provisions for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015

January 1

Arising during the

year

Unused amounts reversed Utilized

Others (*1)

December 31 Current Non-current

Construction warranties ￦ 373,775 ￦ 101,275 ￦ (71,916) ￦ (37,368) ￦ 6,815 ￦ 372,581 ￦ (128,339) ￦ 244,242

Returned goods 1,197 1,513 (261) (370) - 2,079 (2,079) -

￦ 374,972

￦ 102,788 ￦ (72,177) ￦ (37,738)

￦ 6,815

￦ 374,660 ￦ (130,418) ￦ 244,242

(*1) Includes gain or loss arising from changes in foreign exchange rates.

2014

January 1

Arising during the

year

Unused amounts reversed Utilized

Others (*1)

December 31 Current Non-current

Construction warranties ￦ 417,493 ￦ 95,850 ￦ (74,213) ￦ (63,507) ￦ (1,848) ￦ 373,775 ￦ (136,027) ￦ 237,748

Returned goods 858 1,354 (1,015) - - 1,197 (1,197) -

￦ 418,351 ￦ 97,204 ￦ (75,228) ￦ (63,507) ￦ (1,848) ￦ 374,972 ￦ (137,224) ￦ 237,748

(*1) Includes gain or loss arising from changes in foreign exchange rates.

The Group estimates expenses required to settle the Group’s obligations on product warranties, refunds, maintenance and others based on the level of warranty period, historical experience and other considerations.

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18. Equity

The Company is authorized to issue 400,000,000 shares, with a par value of ￦5,000 per share and the number of ordinary stock issued as at December 31, 2015 and 2014 is 106,158,256. The number of redeemable convertible preferred stock (RCPS) issued as at December 31, 2015 and 2014 is 13,203,540. The number of shares with limited voting rights under the Korean Commercial Code as at December 31, 2015 and 2014 is 7,312,505.

Changes in the issued capital and paid-in capital in excess of par value of the Company for the year ended December 31, 2015 are summarized as follows (number of share, Korean won in millions):

Number of shares Issued capital Paid-in capital in excess of par value

Ordinary

stock Preferred stock(*1) Ordinary stock

Preferred stock(*1) Total

Ordinary stock

Preferred stock(*1) Total

As at Jan 1, 2015 106,158,256 13,203,540 ￦ 530,791 ￦ 66,018 ￦ 596,809 ￦ 73,011 ￦ 306,662 ￦ 379,673

As at Dec 31, 2015 106,158,256 13,203,540 530,791 66,018 596,809 73,011 306,662 379,673

(*1) On December 6, 2014, the Company issued RCPS under the resolution of the Board of Directors on November 25, 2014 and the details are as follows:

Description Purpose of issuance Improve the Company’s capital structure Issued shares Cumulative non-participating preferred stock Number of issued shares 13,203,540 shares Value of issued shares ￦28,250 per share Voting right Preferred stock has one voting right per share, same as

common stock, and when a resolution of shareholders’ meeting is unfavorable to the preferred stock, such resolution must be also approved at the preferred stockholders’ meeting.

Dividend right Based on the issue price, 3.3% per year (after 5 years, 0.75% will be added annually on the index of 5-year average rate of returns posted by the private bond value appraisal institutions)

Redeemable right ① 1 ~ 5 years: early redemption is available to the extent of 10% of total preferred stock with 10% plus issuance price.

② Redemption at year 5: redeemable all or some portion of preferred stock 5 years after the payment date. (At issue price plus 5.48% per annum less prepaid dividends)

③ 5 ~ 10 years: redeemable with adjusted amount based on the rate of returns posted by the private bond value appraisal institutions.

Convertible right ① Convertible all or some portion of preferred stocks ② Conversion period: 1~10 years after the payment date ③ Conversion ratio: 1 common stock to 1 preferred stock

The Company has the redeemable right in connection with the above RCPS and there are no contractual obligations for the Company to pay in cash and/or other financial assets. Therefore, the Company classified the RCPS as equity.

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19. Capital surplus Capital surplus as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Paid-in capital in excess of par value ￦ 379,673 ￦ 379,673 Revaluation surplus 594,262 594,262 Other capital surplus 589,983 854,350

￦ 1,563,918 ￦ 1,828,285

20. Other components of equity 20-1. Other components of equity as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Treasury shares ￦ (175,901) ￦ (175,901)Stock options 11,988 13,104 Others 58,756 61,001

￦ (105,157) ￦ (101,796)

20-2. Treasury shares as at December 31, 2015 and 2014 are as follows (Korean won in millions, number of shares):

2015 2014 Number of

shares Amount Number of

shares Amount

Ordinary stock 7,312,505 ￦ 90,261

7,312,505 ￦ 90,261

Preferred stock 3,025,532 85,640

3,025,532 85,640

10,338,037 ￦ 175,901

10,338,037 ￦ 175,901

20-3. The Company has granted stock options to its executives. The settlement method for stock options includes issuance of new shares, issuance of treasury shares or cash settlement. The type of settlement method chosen is determined based on the Board of Directors' decision at the time of exercise. These stock options require a vesting condition of a two year continuous employment from the grant date.

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20. Other components of equity (cont’d) The terms and conditions of stock options granted as at December 31, 2015 are summarized as follows (Korean won in units, shares in units):

Grant date

Number of shares to be

issued Exercise period Exercise price

Estimated fair value as of the

grant date

2006.02.27 2,6002009.02.27 ~ 2016.02.26 ￦ 33,200 ￦ 12,950

2007.03.16 8,6002010.03.17 ~ 2017.03.16 50,200 22,564

2008.03.21 17,4002011.03.21 ~ 2018.03.20 121,200 49,565

2009.03.27 13,2002012.03.27 ~ 2019.03.26 73,000 32,595

2010.03.26 29,6002013.03.26 ~ 2020.03.25 90,100 41,077

2011.03.25 59,9002014.03.25 ~ 2021.03.24 65,700 24,642

2012.03.30 143,2002015.03.30 ~ 2022.03.29 66,800 16,337

2013.03.29 279,9002016.03.29 ~ 2023.03.28 44,900 10,860

2014.03.28 342,3002017.03.28 ~ 2024.03.27 34,550 7,948

896,700

Change in the stock options for the year ended December 31, 2015 is summarized as follows (Korean won in millions, shares in units):

Number of shares to be issued Grant date January 1 Newly granted Retired December 31 2006.02.27 2,600 - - 2,6002007.03.16 8,600 - - 8,6002008.03.21 19,000 - (1,600) 17,4002009.03.27 15,450 - (2,250) 13,2002010.03.26 34,400 - (4,800) 29,6002011.03.25 79,100 - (19,200) 59,9002012.03.30 220,400 - (77,200) 143,2002013.03.29 279,900 - - 279,9002014.03.28 394,800 - (52,500) 342,300

1,054,250 - (157,550) 896,700

Valuation Grant date January 1 Newly granted Retired December 31 2006.02.27 ￦ 33 ￦ - ￦ - ￦ 332007.03.16 194 - - 1942008.03.21 942 - (79) 8632009.03.27 504 - (74) 4302010.03.26 1,413 - (197) 1,2162011.03.25 1,950 - (473) 1,4772012.03.30 3,600 - (1,261) 2,3392013.03.29 2,633 407 - 3,0402014.03.28 1,835 1,535 (974) 2,396

￦ 13,104 ￦ 1,942 ￦ (3,058) ￦ 11,988

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20. Other components of equity (cont’d) The Company’s weighted average share prices at the exercise date for the years ended December 31, 2015 and 2014 are ￦24,195 and ￦30,751, respectively. The Company’s weighted average expected durations of share based payment for December 31, 2015 and 2014 are 0.8 years and 1.5 years, respectively.

Compensation expenses associated with stock options for the years ended December 31, 2015 and 2014 are ￦985 million and ￦2,681 million, respectively, and compensation expenses amounting to ￦324 million are expected to be recognized in the future periods.

The estimated fair value was calculated using the modified fair value method and assumptions applied to this method are summarized as follows:

Grant date Risk free rate

(*1) Expected

exercise period Expected volatility

Expected dividend yield

2006.02.27 5.01% 3 years 53.87% 1.69% 2007.03.16 4.79% " 49.33% 5.67% 2008.03.21 5.25% " 56.02% 7.33% 2009.03.27 3.71% " 65.15% 9.00% 2010.03.26 3.82% " 66.45% 10.00% 2011.03.25 3.66% " 53.12% 10.00% 2012.03.30 3.57% " 38.21% 13.33% 2013.03.29 2.45% " 35.98% 15.00% 2014.03.28 2.88% " 34.72% 15.00%

(*1) Based on a three-year treasury bond yield rate.

21. Accumulated other comprehensive income (loss)

21-1. Accumulated other comprehensive income (loss) for the years ended December 31, 2015 and 2014 are summarized as follows (Korean won in millions):

2015 2014 Loss on valuation of available-for-sale financial assets ￦ (30,544) ￦ (203)

Gain (loss) on valuation of derivative financial instruments 18,615 (36,940)

Change in equity of equity method investments 1,337 (847)Gain on revaluation of land 1,014,673 734,366 Loss on translation of foreign operations (492,069) (475,457)

￦ 512,012 ￦ 220,919

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21. Accumulated other comprehensive income (loss) (cont’d) 21-2. Details of income taxes on OCI items directly relected in equity for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 Balance before tax Tax effect Balance after tax

Loss on valuation of available-for-sale financial assets ￦ (32,400) ￦ 1,856 ￦ (30,544)

Gain on valuation of derivative financial instruments 21,064 (2,449) 18,615

Change in equity of equity method investments 1,438 (101) 1,337

Gain on revaluation of land 1,342,013 (327,340) 1,014,673 Loss on translation of foreign operations (492,069) - (492,069)

￦ 840,046 ￦ (328,034) ￦ 512,012

2014 Balance before tax Tax effect Balance after tax

Gain (loss) on valuation of available-for-sale financial assets ￦ 866 ￦ (1,069) ￦ (203)Loss on valuation of derivative financial instruments (49,182) 12,242 (36,940)

Change in equity of equity method investments (419) (428) (847)

Gain on revaluation of land 971,242 (236,876) 734,366 Loss on translation of foreign operations (475,457) - (475,457)

￦ 447,050 ￦ (226,131) ￦ 220,919

22. Retained earnings 22-1. Retained earnings of the Group as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Legal reserve ￦ 117,868 ￦ 109,168 Voluntary reserve 1,079,588 1,116,594 Unappropriated retained earnings (undisposed deficit) (184,368) 889,441

￦ 1,013,088 ￦ 2,115,203

22-2. Details of dividends for the years ended December 31, 2015 and 2014 are as follows:

2015 (*1) 2014

Common stock Preferred stock Common stock Preferred stock

(*2)

Number of shares 98,845,751

shares 13,203,540

shares98,845,751

shares 13,203,540

sharesPar value per share (Korean won in units) ￦ 5,000 ￦ 5,000 ￦ 5,000 ￦ 5,000

Par value dividend rate 17.0% 18.6% 15.0% 18.6%Dividends per share (Korean won in units) ￦ 850.00 ￦ 932.25 ￦ 750.00 ￦ 932.25

Dividends (Korean won in millions) ￦ 84,019 ￦ 12,309 ￦ 74,134 ￦ 12,309

(*1) Represents the amount proposed prior to the date of approval of issuance of financial statements, but not recognized as appropriations of retained earnings on the financial statements as at the reporting date.

(*2) The number of redeemable convertible preferred stocks issued for the year ended December 31, 2014 was 13,203,540 shares with dividends amounting to ￦12,309 million.

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22. Retained earnings (cont’d)

The Company paid dividends for the year ended December 31, 2014 in April 2015, and dividends for the year ended December 31, 2015 are expected to be paid in April 2016.

22-3. Pay-out ratio and dividend yield ratio for the years ended December 31, 2015 and 2014 are as follows:

2015 (*1) 2014 (*1) Common

stock Preferred

stock Common

stock Preferred

stock

Pay-out ratio

Dividends / Profit for the year attributable to the equity

holders of the parent -

-

-

-

Dividend yield ratio

Dividends per share / Share price at the reporting date 4.13%

- 3.17%

-

(*1) The Group did not calculate the pay-out ratio for 2015 and 2014 as the Group recorded loss for the year.

23. Other non-controlling interests

23-1. Hybrid instruments

Details of hybrid instruments issued by DI classified as equity as at December 31, 2015 are as follows:

Description Issue date October 05, 2012 Issue price USD 500,000,000 Maturity 30 years and automatic revolving Dividend Amount: 3.25% at par value, resets every 5 years, and 5% and 2% will be

added after 5 and 7 years, respectively, according to a “Step up” clause. Payment: semi-annually in arrears, optional deferral of distributions is available.

Others DI can exercise a call option on the instrument every 5 years after the issue date and every dividend payment date afterwards. Investors can exercise a put option on the instrument to Core Partners Limited, an SPE, if DI does not exercise its call option.

If investors exercise their put option and Core Partners Limited, an SPE, acquires the instruments after 5 years since the issue date, the SPE has a right to put the instruments back to DI (the “Stock Exchange Right”) under which the SPE can exchange a unit of the instrument with a par value of $15.40 for one share of DI’s common stock. The hybrid instruments are classified as equity as at December 31, 2015 as they do not contain a contractual obligation for DI to settle in cash and the Stock Exchange Right confers a right to receive a fixed number of DI’s common stock at the issue date.

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23. Other non-controlling interests (cont’d) Details of hybrid instruments issued by DPS.S.A classified as equity as at December 31, 2015 are as follows:

Description Issue date December, 03, 2015 Issue price USD 300,000,000 Maturity 30 years and automatic revolving

Dividend

Amount: 2.50% at par value, resets once after 3 years, and 1.3% will be added after 3 years, according to a “Step up” clause. Payment: semi-annually in arrears, optional deferral of distributions is available.

Others

DPS.S.A can exercise a call option on the instrument 3 years after the issue date The guarantee financial institution, Korea Exim Bank has to retain all of the hybrid instruments owned by investors, if DPS.S.A does not exercise its call option.

If Korea Exim Bank gets to retain the hybrid instruments as the investors exercise the non-call put rights after 3 years, Korea Exim Bank is awarded exchange rights, which allow an exchange of the hybrid instruments with equity shares of the Company. Korea Exim Bank, when it elects to exercise the exchange rights, is entitled to either i) an exchange of par value of USD 19.1 on the hybrid instrument with one share of common stock, or ii) a cash settlement at the issue price of USD 300 million, at the Company’s decision. In this regard, the Company has provided as collateral 75,509,366 shares of DI stock and 29,650,000 shares of DE stock to Korea Exim Bank. The Company assessed that the hybrid instruments are equity securities as the instruments are exchangeable with the Company’s equity securities or settled in cash at the Company’s decision when the exchange rights are exercised by Korea Exim Bank.

23-2. Redeemable convertible preferred stock

Details of redeemable convertible preferred stock are as follows:

Description Issue date December 16, 2013 Purpose of issuance To obtain liquidity and to improve the financial structure Issued shares Cumulative non-participating preferred stock Number of issued shares 22,727,272 shares Value of issued shares ￦17,600 per share Voting right

No voting right is awarded. However, in the case where no dividend for preferred stock is declared at the shareholders’ meeting, the preferred shareholders are awarded one voting right per share from the next shareholders’ meeting up to the shareholders’ meeting where dividend payment for preferred stock is declared.

Dividend rate Based on the issue price, 6.5% per year Redemption right

Redemption: On December 16, 2016, if there is profit available for dividends, DEC can redeem all or some portion of preferred stock. Early redemption: On December 16, 2015, if there is profit available for dividends, DEC can redeem all or some portion of preferred stock (limited to 30% of total issued amount).

Conversion right

Conversion right: Both preferred stockholders and DEC hold conversion rights. However, only preferred stockholders may exercise early conversion rights. Conversion period: From March 16, 2017 to March 15, 2018 Early conversion: Preferred stockholders can convert on December 16, 2015 and 2 business days prior to such date Conversion ratio: 1 common stock per 1 preferred stock

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23. Other non-controlling interests (cont’d) The Group has the redemption rights in connection with the above redeemable convertible preferred stock. As the Group has no contractual obligation to settle in cash or other financial assets, the redeemable convertible preferred stock is classified as equity securities.

24. Segment information 24-1. The reportable business segments of the Group and major products and services by segments are as follows:

Segment Products and services Power generation NCSS, BOP, turbine and others Water Seawater desalination plants and water treatment systems Industrial plants Container handling cranes, national defense service and others

Castings & forgings Power generation components, shipbuilding components, iron & steel making components, mold & tool steel and petrochemical & industrial components

Construction Plant, civil engineering, architecture Wholesale and retail Purchasing agent service

DI Internal combustion engines, and various construction machinery, transport equipment and others

DE Marine engines, internal combustion engine, internal combustion generator, emergency generator for nuclear power plant and others

DEC Apartment building and others

24-2. Summarized financial information by business segments as at and for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015

Sales Intersegment

sales Net sales Operating

income (loss) Profit (loss) Power generation ￦ 5,615,766 ￦ (320,123) ￦ 5,295,643 ￦ 258,927 ￦ 14,507 Water 477,627 (16,449) 461,178 (28,502) (50,024)Industrial plants 69,070 (20) 69,050 15,943 (28,667)Castings & forgings 453,866 (131,020) 322,846 10,236 (2,233)Construction 482,075 8,433 490,508 2,318 (167,887)Wholesale and retail 11,610 (11,555) 55 395 (45,322)

DI 9,718,254 (2,504,251) 7,214,003 27,441 (859,505)DE 704,089 (13,186) 690,903 (63,754) (125,442)DEC 1,820,561 (160,429) 1,660,132 (166,913) (520,746)

19,352,918 (3,148,600) 16,204,318 56,091 (1,785,319)Consolidation adjustments (3,148,600) 3,148,600 - 5,975 34,420

￦ 16,204,318 ￦ - ￦ 16,204,318 ￦ 62,066 ￦ (1,750,899)

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24. Segment information (cont’d)

2014

Sales Intersegment

sales Net sales Operating

income (loss) Profit (loss) Power generation ￦ 6,071,899 ￦ (459,346) ￦ 5,612,553 ￦ 330,336 ￦ 102,649 Water 588,819 (13,198) 575,621 (983) (38,206)Industrial plants 139,333 (74) 139,259 (9,089) (27,930)Castings & forgings 497,244 (132,413) 364,831 (30,668) (46,844)

Construction 572,219 (485) 571,734 33,342 (4,650)Wholesale and retail 9,801 (9,801) - (310) (138)

DI 10,598,898 (2,911,095) 7,687,803 452,994 23,972 DE 897,208 (11,426) 885,782 (39,596) (42,231)DEC 2,230,594 (96,533) 2,134,061 132,836 (68,580)

21,606,015 (3,634,371) 17,971,644 868,862 (101,958)Consolidation adjustments (3,634,371) 3,634,371 - 9,245 16,483

￦ 17,971,644 ￦ - ￦ 17,971,644 ￦ 878,107 ￦ (85,475)

24-3. Summarized financial information on assets and liabilities by business segments as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Asset Liability Asset Liability

Power generation ￦ 10,319,359 ￦ 6,732,792 ￦ 9,032,256 ￦ 5,808,694 Water 952,244 612,209 1,021,478 565,552 Industrial plants 198,150 64,318 316,845 105,160 Castings & forgings 1,254,422 487,464 1,206,074 435,758 Construction 1,444,537 1,010,122 1,587,625 885,386 Wholesale and retail 201,387 77,568 265,711 56,432 DI 11,383,173 8,280,217 11,957,427 8,669,139 DE 1,406,042 831,369 1,540,297 839,595 DEC 4,225,712 2,811,405 5,133,091 3,170,495

31,385,026 20,907,464 32,060,804 20,536,211 Consolidation adjustments (4,124,885) (673,431) (4,508,897) (661,306)

￦ 27,260,141 ￦ 20,234,033 ￦ 27,551,907 ￦ 19,874,905

24-4. Summarized geographic information on sales for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 Sales Intra-Group sales Net sales

Domestic ￦ 8,182,308 ￦ (1,539,121) ￦ 6,643,187 Americas 3,870,545 (492,243) 3,378,302 Asia 2,652,533 (352,095) 2,300,438 Middle East 1,399,848 - 1,399,848 Europe 3,214,521 (765,141) 2,449,380 Others 33,163 - 33,163

19,352,918 (3,148,600) 16,204,318 Consolidation adjustments (3,148,600) 3,148,600 -

￦ 16,204,318 ￦ - ￦ 16,204,318

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24. Segment information (cont’d)

2014 Sales Intra-Group sales Net sales

Domestic ￦ 9,553,798 ￦ (1,727,803) ￦ 7,825,995 Americas 3,614,459 (530,854) 3,083,605 Asia 2,978,837 (510,623) 2,468,214 Middle East 1,812,193 - 1,812,193 Europe 3,607,502 (865,091) 2,742,411 Others 39,226 - 39,226

21,606,015 (3,634,371) 17,971,644 Consolidation adjustments (3,634,371) 3,634,371 -

￦ 17,971,644 ￦ - ￦ 17,971,644

25. Revenue Revenue for the years ended December 31, 2015 and 2014 consist of the following (Korean won in millions):

2015 2014 Finished goods ￦ 10,055,090 ￦ 10,820,250 Construction 5,978,713 7,015,205 Others 170,515 136,189

￦ 16,204,318 ￦ 17,971,644

26. Construction contracts 26-1. Accumulated profit (loss) and related assets and liabilities on construction contracts as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015

Accumulated construction

revenue


cost

Accumulated construction profit (loss)

Receivables from

construction contracts-

billed

Receivables from

construction contracts-unbilled

Dues to customers for contract work

Power generation ￦ 27,658,253 ￦ 22,939,565 ￦ 4,718,688 ￦ 219,450 ￦ 1,140,386 ￦ 653,368

Water 4,055,496 3,668,334 387,162 131,936 128,573 1,419

Industrial plants 750,561 703,137 47,424 6,567 30,301 15,745

Castings & Forgings 367,171 365,162 2,009 53,280 - -

Plant construction 1,257,669 1,235,229 22,440 7,674 14,618 10,882

General construction 2,179,703 2,026,072 153,631 756,117 113,125 55,382 36,268,853 30,937,499 5,331,354 1,175,024 1,427,003 736,796

Subsidiaries:

DEC 9,714,942 8,599,549 1,115,393 1,306,672 362,170 270,789

DE 226,100 177,913 48,187 - 2,331 9,702

DPS S.A and subsidiaries 9,717,433 8,839,573 877,860 171,555 191,903 183,311 19,658,475 17,617,035 2,041,440 1,478,227 556,404 463,802

￦ 55,927,328 ￦ 48,554,534 ￦ 7,372,794 ￦ 2,653,251 ￦ 1,983,407 ￦ 1,200,598

Discontinued (93,877) (92,029) (1,848) (41) 244 -

￦ 55,833,451 ￦ 48,462,505 ￦ 7,370,946 ￦ 2,653,210 ￦ 1,983,651 ￦ 1,200,598

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26. Construction contracts (cont’d)

2014


revenue


cost

Accumulated construction profit (loss)

Receivables from

construction contracts-

billed

Receivables from

construction contracts-unbilled

Dues to customers for contract work

Power generation ￦ 26,557,392 ￦ 21,928,399 ￦ 4,628,993 ￦ 233,269 ￦ 583,492 ￦ 688,891

Water 3,607,768 3,281,925 325,843 12,220 243,910 4,344

Industrial plants 986,374 938,192 48,182 16,154 103,836 24,969

Castings & Forgings 294,794 301,613 (6,819) 48,244 - -

Plant construction 1,144,332 1,145,246 (914) 3,845 19,234 5,588

General construction 2,012,338 1,852,772 159,566 791,435 152,210 23,226 34,602,998 29,448,147 5,154,851 1,105,167 1,102,682 747,018

Subsidiaries:

DEC 9,780,001 8,564,581 1,215,420 1,463,796 777,882 142,482

DE 188,147 147,311 40,836 - 13,000 14,568

DPS S.A and subsidiaries 7,748,960 6,739,164 1,009,796 77,568 185,465 216,134

17,717,108 15,451,056 2,266,052 1,541,364 976,347 373,184 ￦ 52,320,106 ￦ 44,899,203 ￦ 7,420,903 ￦ 2,646,531 ￦ 2,079,029

￦ 1,120,202

Discontinued (215,308) (216,415) 1,107 (313) (4,323) (103)

￦ 52,104,798 ￦ 44,682,788 ￦ 7,422,010 ￦ 2,646,218 ￦ 2,074,706 ￦ 1,120,099

26-2. Changes in construction contracts for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015

Project name Term January 1 Changes in

contract Realized revenue December 31

Power generation

Vinh Tan 4 Thermal Power Plant and others

2014.02~ 2018.06 ￦ 10,474,803 ￦ 4,052,849 ￦ 3,792,135 ￦ 10,735,517

Water

Yanbu ph.3 MSF and others

2012.11 ~ 2016.12 858,531 263,010 435,691 685,850

Industrial plants

Cikarang GTSU 2 and STRE 2 and others 2014.04 ~

2016.04 208,319 (41,773) 69,070 97,476

Castings & Forgings Casting, Forging

2015.01 ~ 2015.12 566,549 414,503 367,323 613,729

Plant construction

Shinboryung #1,2 electric generation construction and others

2013.06 ~ 2017.06 577,904 488,819 138,888 927,835

General construction

Seoul Forest Trimage and others 2013.07 ~

2017.01 1,197,920 231,420 343,187 1,086,153

13,884,026 5,408,828 5,146,294 14,146,560 DE

Singori #3 and #4 emergency generators, alternative AC power diesel engine and other 15

2005.02 ~ 2017.03 97,502 24,460 36,754 85,208

DEC

Suseo-Pyungtaek high speed rail second construction district and others

2007. 05 ~

2017.12 6,736,325 2,078,629 1,742,185 7,072,769

DPS S.A. and subsidiaries Raipur and others

2008.12 ~ 2030.12 1,916,543 2,954,622 1,551,422 3,319,743

8,750,370 5,057,711 3,330,361 10,477,720

￦ 22,634,396

￦ 10,466,539

￦ 8,476,655 ￦ 24,624,280

Discontinued (37,603) 36,659 (944) -

￦ 22,596,793 ￦ 10,503,198 ￦ 8,475,711 ￦ 24,624,280

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26. Construction contracts (cont’d)

2014

Project name Term January 1, Changes in

contract Realized revenue December 31

Power generation

Rabigh Power Plant and others

2010.09 ~ 2017.12 ￦ 9,045,337 ￦ 5,251,988 ￦ 3,822,522 ￦ 10,474,803

Water

Yanbu ph.3 MSF and others

2012.11 ~ 2016.12 1,358,239 42,472 542,180 858,531

Industrial plants

Samcheok #1 ~ 2 CSU4 and others

2013.01 ~ 2016.06 276,516 70,780 138,977 208,319

Castings & Forgings Casting, Forging

2014.01 ~ 2014.12 537,540 449,929 420,920 566,549

Plant construction

Samcheok LNG #5 ~ 7 and others

2010.11 ~ 2015.12 698,691 64,605 185,392 577,904

General construction

Seoul Forest Trimage and others 2013.07 ~

2017.04 1,354,196 230,526 386,802 1,197,920

13,270,519 6,110,300 5,496,793 13,884,026 DE

Singori #3 and #4 emergency generators, alternative AC power diesel engine and other 13

2005.02 ~ 2017.03 84,587 33,641 20,726 97,502

DEC Heaundae Jugong and others

2007.05 ~ 2017.01 7,195,003 1,733,315 2,191,993 6,736,325

DPS S.A. and subsidiaries Raipur and others

2008.12 ~ 2030.12 2,457,071 1,307,841 1,848,369 1,916,543

9,736,661 3,074,797 4,061,088 8,750,370

￦ 23,007,180 ￦ 9,185,097 ￦ 9,557,881 ￦ 22,634,396

Discontinued (61,452) (7,389) (31,238) (37,603)

￦ 22,945,728 ￦ 9,177,708 ￦ 9,526,643 ￦ 22,596,793

26-3. Changes in profit or loss in current and future reporting periods and the book value of due from customers for contracts work (excluding foreign currency translation effect) resulting from changes in total contract revenue and in total estimated contract costs for construction contracts in progress as at December 31, 2015 are as follows (Korean won in millions):

Changes in

total contract revenue

Changes in total

contract cost

Effect on profit (loss) for the

year

Effect on the

future

Changes in

due from customers for contract work

Power generation ￦ 111,833 ￦ 188,599 ￦ (97,111) ￦ 20,345 ￦ 13,853

Water 74,417 58,199 15,839 379 3,499

Industrial plants (2,061) (10,404) 8,298 45 -

Plant construction 51,089 31,377 18,776 936 1,640 General construction 47,300 45,204 8,132 (6,036) 956

DE 19 (450) 464 5 -

DEC 295,315 298,982 (43,118) 39,451 7,096

￦ 577,912 ￦ 611,507 ￦ (88,720) ￦ 55,125 ￦ 27,044

Impacts on current and future net income were calculated based on total contract revenue and costs which were estimated based on the current circumstances as at December 31, 2015. Those estimations may change in the future.

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27. Classification of expenses based on nature Classification of expenses based on nature of expense (cost of sales or selling and administrative expenses) for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Changes in inventories ￦ 135,418 ￦ (126,116)Purchase of raw materials and goods 7,892,897 9,148,032 Salaries 2,710,403 2,725,956 Depreciation & amortization 584,517 567,519

28. Selling and administrative expenses Details of selling and administrative expenses for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Salaries ￦ 593,446 ￦ 651,686 Severance and retirement benefits 274,619 103,324 Employee welfare benefits 131,912 137,313 Travel 62,336 68,037 Training 22,467 31,004 Taxes and dues 24,037 22,989 Commissions 241,926 223,431 Sales commission 60,066 59,864 Rents 71,592 75,954 Bad debt expenses 321,105 113,198 Transportation 16,682 16,735 Depreciation 28,282 38,621 Amortization 79,282 77,319 Research 281,382 277,807 Marketing 30,114 28,330 Advertising 96,237 93,412 Warranty 28,656 21,988 Others 131,450 149,166

￦ 2,495,591 ￦ 2,190,178

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29. Finance income and costs 29-1. Details of finance income for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Interest income ￦ 45,199 ￦ 55,647 Dividend income 1,646 537 Gain on foreign currency transactions 311,182 206,995 Gain on foreign currency translation 126,334 78,703 Gain on settlement of derivative financial instruments 310,578 313,362

Gain on valuation of derivative financial instruments 141,773 92,585

Gain on valuation of firm commitments 297,431 170,310 Gain on financial guarantees 2,047 4,363

￦ 1,236,190 ￦ 922,502

29-2. Details of finance costs for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Interest expenses ￦ 629,790 ￦ 639,638 Loss on foreign currency transactions 270,994 206,327 Loss on foreign currency translation 310,535 104,766 Loss on settlement of derivative financial instruments 291,928 311,962

Loss on valuation of derivative financial instruments 317,568 282,020

Loss on valuation of firm commitments 89,306 76,866 Payment of guarantee fee 42,136 112,894 Loss on redemption of debentures 350 38,140 Others 2,634 1,688

￦ 1,955,241 ￦ 1,774,301

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30. Other non-operating income and expenses 30-1. Details of other non-operating income for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Gain on disposal of plant, property and equipment ￦ 6,460 ￦ 4,384

Gain on disposal of intangible assets 625 176 Gain on disposal of investment property - 785 Gain on disposal of available-for-sale financial instruments 12,284 1,463

Gain on disposal of other non-current assets 29,718 -Gain on disposal of non-current assets classified as held-for-sale (338) 45,090

Reversal of impairment on plant, property and equipment 1,400 -

Others 45,674 75,864 ￦ 95,823 ￦ 127,762

30-2. Details of other non-operating expenses for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Loss on disposal of trade receivables ￦ 13,935 ￦ 23,440 Loss on disposal of plant, property and equipment 9,010 7,941

Loss on disposal of intangible assets 200 144 Other bad debt expenses 283,554 61,908 Impairment loss on plant, property and equipment 129,915 8,691

Impairment loss on intangible assets 196,904 13,103 Impairment loss on other non-current assets 11,679 -

Restructuring expenses 55,284 45,455 Impairment loss on non-current assets classified as held-for-sale 71,811 -

Donation 26,277 23,135 Others 116,473 95,453

￦ 915,042 ￦ 279,270

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31. Income taxes 31-1. The component of income tax expense (benefit) for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Current income tax: ￦ 90,726 ￦ 131,651 Adjustments in respect of current income tax of prior year 175 302 Tax effect of temporary difference 197,182 (283,462)Total income tax expense (benefit) 288,083 (151,509)Current income tax related to items recognized in equity during the year 1,360 (1,361)Deferred tax related to items recognized in equity during the year (121,550) 52,234 Income tax benefit related to discontinued operation - (4,169)Income tax expense (benefit) ￦ 167,893 ￦ (104,805)

31-2. The component of income tax expense and deferred tax related to items recognized in equity for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Net loss on disposal of treasury stock ￦ - ￦ (9)Equity adjustments in equity method 22 (260)Net gain on revaluation of land 111,463 436 Unrealized gain on available for sale financial assets 4,244 407 Gain (loss) on valuation of derivative financial instruments 13,847 (2,033)Remeasurement of the net defined benefit liability (16,170) (46,446)Net loss on translation of foreign operations (44,215) (2,968)Others 50,999 -

￦ 120,190 ￦ (50,873)

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31. Income taxes (cont’d) 31-3. Changes in deferred tax assets (liabilities) for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015

Jan 01 Increase

(decrease) Dec 31 Provision for retirement and severance benefits ￦ 262,606 ￦ (3,715) ￦ 258,891

Allowance for doubtful accounts 398,220 82,598 480,818Property, plant and equipment 25,569 4,875 30,444 Reserve for research and development (137,584) 40,323 (97,261)

Intangible assets 53,446 13,745 67,191 Derivative financial instruments 57,981 (25,500) 32,481 Foreign currency denominated assets (liabilities) 1,232 15,421 16,653

Gain on revaluation of land (682,421) (76,823) (759,244)Others 882,898 (248,106) 634,792

￦ 861,947 ￦ (197,182) ￦ 664,765

2014

Jan 01 Increase

(decrease) Dec 31 Provision for retirement and severance benefits ￦ 196,946 ￦ 65,660 ￦ 262,606

Allowance for doubtful accounts 458,115 (59,895) 398,220 Property, plant and equipment 49,614 (24,045) 25,569 Reserve for research and development (144,279) 6,695 (137,584)

Intangible assets 40,876 12,570 53,446 Derivative financial instruments 24,575 33,406 57,981 Foreign currency denominated assets (liabilities) 1,059 173 1,232

Gain on revaluation of land (700,125) 17,704 (682,421)Others 651,704 231,194 882,898

￦ 578,485 ￦ 283,462 ￦ 861,947

31-4. The amount of deductible temporary differences for which no deferred tax asset is recognized in the statements of financial position as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Deductible temporary differences ￦ 3,651,343 ￦ 1,818,302

The probability of deferred tax assets being realized depends on the Group's ability to generate taxable income in future years over which temporary differences are expected to reverse, the economic situation, industry forecast and other various factors. The Group periodically reviews such matters.

31-5. Temporary differences related to investment in subsidiaries, associates and joint ventures which are not recognized as deferred tax asset (liability) as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Investment in subsidiaries ￦ 681,368 ￦ 514,445 Investment in associates or joint ventures 41,324 22,119

￦ 722,692 ￦ 536,564

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31. Income taxes (cont’d) 31-6. Reconciliation of loss before income tax at the Korea statutory tax rate to income tax benefit at the effective income tax rate of the company as follows (Korean won in millions):

2015 2014 Loss before income tax ￦ (1,557,863) ￦ (205,060)Income tax using the controlling company's statutory tax rate (507,973) (38,266)Adjustments: Non-temporary differences (53,366) 17,276 Unrealized deferred tax related to temporary differences 583,232 (37,176) Tax credit (7,195) (49,722) Others 153,195 3,083 Income tax benefit ￦ 167,893 ￦ (104,805)Effective tax rate(*1) - -

(*1) Effective tax rate for the years ended December 31, 2015 and 2014 were not calculated due to loss before income tax.

32. Earnings (loss) per share 32-1. Basic earnings loss per share amounts are calculated by dividing the profit (loss) for the year attributable to ordinary equity holders of the Group by the weighted average number of ordinary shares outstanding during the year.

Basic earnings loss per share for the years ended December 31, 2015 and 2014 are as follows (Korean won in units, except for share):

2015 2014 Loss for the year attributable to equity holders of the parent ￦ (1,038,543,220,644) ￦ (94,675,179,547)Less: preferred stock dividend 12,309,000,165 12,309,000,165 Loss for the year attributable to ordinary equity holders of the parent (1,050,852,220,809) (106,984,179,712)Loss from continuing operations (1,030,685,639,610) (119,481,753,094)Profit (loss) from discontinued operations (20,166,581,199) 12,497,573,382 Weighted-average number of ordinary stock outstanding 98,845,751 Shares 98,845,751 Shares

Earnings (loss) per share: Basic, loss for the year attributable to ordinary equity holders of the parent (10,631) (1,082)Loss for the year from continuing operations (10,427) (1,209)

Profit (loss) for the year from discontinued operations (204) 127

Weighted-average number of ordinary shares outstanding for the years ended December 31, 2015 and 2014 are as follows (number of shares):

2015 2014 Issued ordinary shares as at January 1 106,158,256 106,158,256 Effect of treasury stock held (7,312,505) (7,312,505)Weighted average number of ordinary shares outstanding as at December 31 98,845,751 98,845,751

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32. Earnings (loss) per share (cont’d) 32-2. Diluted earnings loss per share amounts are calculated on the basis of the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

Diluted earnings loss per share for the years ended December 31, 2015 and 2014 are as follows (Korean won in units, except for share):

2015 2014 Loss for the year attributable to equity holders of the parent ￦ (1,050,852,220,809) ￦ (106,984,179,712)

Adjusted profit (loss) for the year - -Loss for the year attributable to equity holders of the parent after adjustment (1,050,852,220,809) (106,984,179,712)

Loss from continuing operations (1,030,685,639,610) (119,481,753,094)Profit (loss) from discontinued operations (20,166,581,199) 12,497,573,382Weighted average number of ordinary shares outstanding as at December 31, after adjustment

98,845,751 Shares 98,845,751 SharesEarnings (loss) per share: Diluted, loss for the year attributable to ordinary equity holders of the parent (10,631) (1,082)

Loss for the year from continuing operations (10,427) (1,209)

Profit (loss) for the year from discontinued operations (204) 127

Adjusted weighted-average number of ordinary shares outstanding for the year ended December 31, 2015 and 2014 are as follows (number of shares):

2015 2014 Weighted average number of ordinary shares outstanding as at December 31 98,845,751 98,845,751

Effect of stock options - -Weighted average number of ordinary shares (diluted) outstanding as at December 31 98,845,751 98,845,751

32-3. Details of potential ordinary shares, that are potentially dilutive but were not included in the calculation of earnings (loss) per share, as there were no dilutive effects for the years ended December 31, 2015 and 2014, are as follows (number of shares):

88


32. Earnings (loss) per share (cont’d)

2015 2014 Stock option (Feb. 27, 2006) 2,600 2,600 Stock option (Mar. 16, 2007) 8,600 8,600 Stock option (Mar. 21, 2008) 17,400 19,000 Stock option (Mar. 27, 2009) 13,200 15,450 Stock option (Mar. 26, 2010) 29,600 34,400 Stock option (Mar. 25, 2011) 59,900 79,100 Stock option (Mar. 30, 2012) 143,200 220,400 Stock option (Mar. 29, 2013) 279,900 279,900 Stock option (Mar. 28, 2014) 342,300 394,800

Redeemable convertible preferred stocks 13,203,540 13,203,540 14,100,240 14,257,790

33. Commitments and contingencies

(i) As at December 31, 2015, 25 promissory notes in the aggregate of ￦18,887 million, 27 blank notes and 34 blank checks have been provided as collateral to relevant financial institutions and others for the Group’s debt and guarantees.

(ii) As at December 31, 2015, the Group has credit lines for borrowings, bank overdrafts and others from financial institutions for up to ￦10,821,288 million and used ￦8,625,297 million. As a result, the Group maintains unused credit lines amounting to ￦2,195,991 million.

(iii) As at December 31, 2015, the Group is involved in pending lawsuits as a defendant with total claims against the Group amounting to approximately ￦604,980 million. The outcome of such pending lawsuits cannot presently be determined. In 2015, Hyundai Engineering & Construction Co., Ltd. requested International Chamber of Commerce to arbitrate disputes on manufacture of HRSG and warranties for general repairs with DEC. As at December 31, 2015, arbitration is in process, and the outcome of the arbitration cannot be reasonably estimated.

(iv) As at December 31, 2015, the Group has entered into 20 technical contracts with Mitsubishi Heavy Industries, Ltd. and others. Royalty payments for the use of such technologies amounted to ￦59,496 million (2014: ￦86,333 million) for the year ended December 31, 2015.

(v) The Group continues to recognize factored financial assets in the statement of financial position since the Group holds virtually all the risks and rewards of ownership. The Group also recognizes the associated financial liabilities amounting to ￦103,166 million as at December 31, 2015.

(vi) As at December 31, 2015, the Group provides joint and several guarantees amounting to ￦588,272 million for the performance of construction contracts to other construction companies. In addition, the Group provides joint and several guarantees for construction performance to Korea Housing & Finance Corporation related to the guarantee for housing sales, which was provided by Korea Housing Finance Corporation to the developers.

(vii) As at December 31, 2015, payment guarantees by financial institutions amounting to ￦11,649,132 million are provided for the Group in connection with domestic and overseas construction projects and others.

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33. Commitments and contingencies (cont’d)

(viii) As at December 31, 2015, the Group provides payment guarantees amounting to ￦2,307,998 million to customers and purchasers of vacant lots for housing sales for the purpose of supporting reconstruction and redevelopment project unions and increasing domestic and overseas sales.

(ix) Operating lease commitments

As at December 31, 2015, the Group's total future minimum lease payments under non-cancellable operating lease contracts are as follows (Korean won in millions):

Amount Less than 1 year ￦ 29,513More than 1 year ~ Less than 5 years 99,029More than 5 years 129,762 ￦ 258,304

(x) Ordinary wages related contingencies

The Supreme Court of the Republic of Korea ruled that regular bonuses and other employee benefits, which are to be paid on a regular basis, universally applicable, and at fixed term, also fall under the category of ordinary wages. Given that the Supreme Court’s ruling is expected to cause an additional financial burden for most companies, the Supreme Court ruled that such additional liability may be exempted from its retroactive obligation, should such liability lead to excessive financial hardship for the entity. In relation to the Supreme Court’s ruling, the Group did not recognize any additional provision for the liability as it is not probable that full retroactive payments will be made considering such liability may lead to excessive financial hardship for the Group.

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33. Commitments and contingencies (cont’d) (xi) As at December 31, 2015, details of guarantees provided by the Group for developers’ project

financing are as follows (Korean won in millions):

Type Developer Project name Lender Guarantee

period Guarantee

limit Loan

balance Warranty

type

ABCP The Company

Sangdo-dong Doosan We’ve (2nd)

Kiwoom Securities and others 2015.11.26~

2016.02.26 ￦ 70,000 ￦ 70,000 Debt

assumptionHongcheon Mokok CC (Club Mow)

Hi Investment Securities and others 2015.04.22~

2016.04.19 70,000 70,000 Debt

assumption140,000 140,000

Loan The Company

Seoul Forest Trimage

Korea Federation of Community Credit Cooperative and others

2014.04.29~ 2017.08.29 195,000

195,000 Debt

assumptionYongin Administration town

KDB Capital and others 2014.04.18~

2016.04.17 55,000 55,000 Debt


SC Bank and others 2015.04.22~

2016.04.19 68,000 68,000 Debt

assumption

DEC Hwaseong Banwol

Nonghyup Bank and others 2008.03.31~

2016.06.30 78,000 60,000

Joint and several

guarantee

Pohang new port

Shinhan Bank and others 2010.03.26~

2025.12.31 7,447 7,447

Joint and several

guarantee

Ulsan Daehyung-dong

Woori Bank and others

2013.07.11 ~ 2017.11.30 89,500

89,500

Joint and several

guarantee

Daejeon Riverside KEB Hana Bank 2004.05.06~

2024.05.06 7,167 3,987

Joint and several

guarantee 500,114 478,934

Short-term debenture

The Company

Seoul Forest Trimage

LIG Securities and others

2014.04.29~ 2017.08.29 35,000 35,000

Debt assumption

Yongin Administration

town SK Securities 2014.04.18~ 2016.04.17 30,000 30,000

Debt assumption

Sangdo-dong Doosan We’ve (2nd)

Kiwoom Securities and others 2015.11.26~

2016.02.26 120,000 120,000 Debt


Kyobo Securities and others 2015.04.22~

2016.04.19 30,000 30,000 Debt

assumption

DEC

Ulsan Daehyung-dong KTB Securities 2015.10.06~

2016.01.06 41,600 32,000

Joint and several

guarantee Cheonan Chengdang-dong

Shinyoung Securities 2015.12.18~

2016.03.18 65,000 50,000

Joint and several

guarantee 321,600 297,000

￦ 961,714 ￦ 915,934

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33. Commitments and contingencies (cont’d) (xii) Details of consolidated structured entities as at December 31, 2015 are as follows (Korean won in

millions):

Entity

Nature of interests in consolidated structured entities or provision of financial

support

Liability amount of interests in consolidated

structured entities

Maximum exposure to the

loss of consolidated

structured entities

Doosan Cuvex 1st Securitization Specialty LLC

(*1) Obligation for financial support including principle, interest, etc. ￦ 41,500 ￦ 41,500

SD 1st Co.,Ltd. (*2) Obligation for financial support including

principle, interest, etc. 100,000 69,500 PINETREE CITY 1st Co,.Ltd.

(*3) Obligation for financial support including

principle, interest, etc. 50,000 39,700

DS Changwon 1st LLC (*4) Obligation for financial support including


SD 5th Co.,Ltd. (*5) Obligation for financial support including


DS Public 1st Co.,Ltd. (*6) Obligation for financial support including


DS Public 2nd Co.,Ltd. (*7) Obligation for financial support including


DS-Bliss 1st Co.,Ltd. (*8) Obligation for financial support including


The DSWAY 1st Co.,Ltd. (*9) Obligation for financial support including

principle, interest, etc. 40,000 40,000 Doosan E&C 2nd Co.,Ltd.

(*10) Obligation for financial support including


KDPP 1st Co.,Ltd. (*11) Obligation for financial support including

principle, interest, etc. 115,000 115,000 Happy Tomorrow 20th

Co., Ltd. (*11) Obligation for financial support including


(*1) Doosan Cuvex 1st Securitization Specialty LLC was established for the purpose of securitizing the shares of a subsidiary, Doosan Cuvex Co., Ltd., held by DEC. It receives funds from issuing ABS bonds to financial institutions. Based on the book value presented in its financial statements, underlying assets amounted to ￦41,500 million as at December 31, 2015.

(*2) SD 1st Co., Ltd. was established for the purpose of securitizing future construction receivables from nine government-ordered constructions projects including Incheon-Kimpo Highway project of DEC. It receives funds from issuing ABS bonds to financial institutions. Based on the book value presented in its financial statements, underlying assets amounted to ￦69,500 million as at December 31, 2015.

(*3) PINETREECITY 1st Co., Ltd. was established for the purpose of borrowing by providing DEC’s Changwon 2nd plant as subordinated collateral. The company issued ABS bonds to financial institution for funding and the book value of underlying assets are amounting to ￦39,700 million based on its financial statement as at December 31, 2015. DEC has provided the certain portion of properties for obligation for financial supporting for the company.

(*4) DS Changwon 1st LLC was established for the purpose of borrowing by providing DEC’s Changwon 1st plant as subordinated collateral. The company issued ABS bonds to financial institution for funding and the book value of underlying assets are amounting to ￦30,000 million based on its financial statement as at December 31, 2015. DEC has provided the certain portion of properties for obligation for financial supporting for the company.

(*5) SD 5th Co., Ltd. was established for the purpose of securitizing future construction receivables from two government-ordered constructions projects including Suseo pyungtaek high speed rail second construction district of DEC. It receives funds from issuing ABS bonds to financial institutions. Based on the book value presented in its financial statements, underlying assets amounted to ￦33,000 million as at December 31, 2015.

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(*6) DS Public 1st Co., Ltd. was established for the purpose of securitizing future construction receivables from eight government-ordered constructions projects including Wonju-Gangneung Railway Fifth construction district of DEC. It receives funds from issuing ABS bonds to financial institutions. Based on the book value presented in its financial statements, underlying assets amounted to ￦49,900 million as at December 31, 2015.

(*7) DS Public 2nd Co., Ltd. was established for the purpose of securitizing future construction receivables from nine construction project including construction of KHNP head office of DEC subsidiary company. It receives funds from issuing ABS bonds to financial institutions. Based on the book value presented in its financial statements, underlying assets amounted to ￦35,000 million as at December 31, 2015.

(*8) DS-Bliss 1st Co., Ltd. was established for the purpose of securitizing future construction receivables from seven construction projects including Wolgye fourth zone project, Chuncheon training institute. It receives funds from issuing ABS bonds to financial institutions. Based on the book value presented in its financial statements, underlying assets amounted to ￦45,000 million as at December 31, 2015. DEC has provided the some of its properties for obligation for financial supporting for the company.

(*9) The DSWAY 1st Co.,Ltd. was established for the purpose of securitizing future construction receivables from five construction projects including Doosan research complex of DEC. It receives funds from issuing ABS bonds to financial institutions. Based on the book value presented in its financial statements, underlying assets amounted to ￦40,000 million as at December 31, 2015.

(*10) Doosan E&C 2nd Co., Ltd. was established for the purpose of borrowing by providing DEC’s Changwon 2nd plant as collateral. The company issued ABS bonds to financial institution for funding and the book value of underlying assets are amounting to ￦102,000 million based on its financial statement as at December 31, 2015. DEC has provided the some of its properties for obligation for financial supporting for the company.

(*11) KDPP 1st Co., Ltd and Happy Tomorrow 20th Co., Ltd. was established for the purpose of securitizing future construction receivables belongs to parent company. It receives funds from issuing ABCP bonds to financial institutions. Based on the book value presented in its financial statements, underlying assets amounted to ￦115,000 million and ￦50,000 million each as at December 31, 2015.

(xiii) Other commitments and contingencies

(a) During the year ended December 31, 2011, DI issued 19th series bonds denominated in USD 350 million. In accordance with the agreement for issuing the 19th series bonds, an early redemption clause exists for when and if DI’s guarantor, KDB, becomes privatized. However, under the agreement, the funds required for such redemption will be lent by KDB to DI. In addition, DI has provided its 20,429 shares of DII, acquired on November 25, 2011 as collateral to KDB.

(b) As at December 31, 2015, DI, a shareholder of Doosan Infracore China Co., Ltd. entered into an agreement with financial investors under which DI and the financial investors, as they mutually agree, may collectively dispose of all shares in Doosan Infracore China Co., Ltd., respectively held by each, to a third party. Upon exercise of the agreement by the financial investors, DI holds the right to sell its shares in Doosan Infracore China Co., Ltd. together pursuant to the agreement or otherwise repurchase the shares held by the financial investors.

93



(c) DEC entered into construction contracts with INTDC Co., Ltd. and Daewon Plus Constructions Co., Ltd., to develop Ilsan Zenith project and Haeundae Zenith project, respectively. DEC has provided guarantees to customers, who purchase the Ilsan Zenith and Haeundae Zenith apartments, for the consideration paid to purchase the apartments during the repurchase guarantee periods (2~3 years after the date of sale), should customers apply for such guarantees (See Note 33-8). As at December 31, 2015, the Group’s consolidated financial statements do not reflect the effect from such guarantees as the Group cannot reasonably predict the number of purchasers applying for the guarantee and the related guaranteed amount.

(d) With regard to the Incheon-Kimpo Highway Construction Project, the Group entered into a capital supplement agreement with a limit of guarantee of ￦22,346 million with Incheon-Kimpo Expressway Co., Ltd. and Construction investors associated with SOC business have an agreement of providing a insufficient fund, when the agreement was terminated or insufficient to repay the loan principal and interest by buy price or payment arising from purchase requirement from authorities.

(e) The convertible preferred shareholders of Doosan Bobcat Inc. have rights to call for selling shares of Doosan Bobcat Inc. owned by Doosan Infracore Co., Ltd. and shares of DII, DHEL and Doosan International South East Asia Pte. Ltd. owned by Doosan Bobcat Inc. if Doosan Bobcat Inc. does not go public in 4 years and 6 months. When the convertible preferred shareholders of Doosan Bobcat Inc. exercise their put options, Doosan Infracore Co., Ltd. should repurchase shares of Doosan Bobcat Inc..

(f) As at December 31, 2015, the Company has entered into a contract to assume a liability (limit: ￦155,000 million) if it fails to complete construction of The Land Park Office in Magok district.

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34. Assets pledged as collateral 34-1. Assets pledged as collateral related with debt

(i) As at December 31, 2015, assets that have been pledged as collateral for the Group's borrowings and others are as follows (Korean won in millions):

Pledgor Collateralized asset Collateralized

amount

Amount of borrowings and others Pledgee

The Company

Short-term financial instruments ￦ 4,208 ￦ - Banca Transylvania

Property, plant and equipment 602,499 565,216 KDB

3,516 2,678 Korea Exim Bank 27,907 23,414 Vietnam Bank

466 - Banca Transylvania Trade receivables 8,419 - Banca Transylvania

DI Property, plant and equipment (*1) 549,674 292,600 KDB

DEC Investment property 30,912 237,054 Woori bank Property, plant and equipment 195,500 65,207 KEB Hana Bank

119,500 75,535 KDB

2,772 412 Kookmin Bank

39,000 30,000 DS Changwon 1st Co., Ltd. 130,050 102,000 Doosan E&C 1st Co., Ltd. 65,000 39,700 PINETREE CITY 1st Co,.Ltd.80,000 45,000 DS-Bliss 1st Co.,Ltd.

Trade receivables 6,974 5,400 Korea Infra Asset Management Co.,Ltd.

￦ 1,866,397 ￦ 1,484,216 (*1) The rights to the benefits from property insurance have been pledged as collateral to KDB.

(ii) Doosan Infracore International, Inc. (DII) and Doosan Holdings Europe Ltd. (DHEL) repaid all the long-term borrowings funded in 2011 for the acquisition of the Compact Equipment business of Ingersoll-Rand and entered into a new loan agreement to borrow USD 1,700,000 thousand on May 28, 2014. DI provided 27,096 shares in DII, 21,820 shares in DHEL, and certain tangible and intangible assets of DII and DHEL, and their subsidiaries as collateral for borrowings amounting to USD 1,300,000 thousand. The balance of borrowings as at December 31, 2015 amounted to USD 1,180,500 thousand. And DE Provided Citigroup Global Market Inc. with 7,242 shares in DII and 8,154 shares in DHEL as collateral for the borrowings amounting to USD 1,300 million and DE also provided certain shares in DII and DHEL in connection with an overdraft limit agreement amounting to USD 100 million.

(iii) DI has provided 4,540 shares in DII and 4,859 shares in DHEL held by Doosan Bobcat Inc. as collateral for borrowings amounting to ￦100,000 million from Core Value 1st Co., Ltd. and 2 other companies. DI has provided all of its shares in Doosan Infracore America Corp. and Doosan Infracore Norway AS. as collateral for borrowings amounting USD175,000 thousands from Korea Exim Bank. In addition DI has provided cash and cash equivalent of ￦15,000 million in DI as collateral for borrowings amounting to BRL 20 million which DI’s subsidiaries, Doosan Infracore South America Industria E Comercio De Maquinas De Construcao LTDA borrowed. Also DI has provided CNY830 million as collateral for credit line amounting to ￦132,000 million opened in Bank of China.

(iv) DEC has provided 1,200,000 shares in Doosan Cuvex Co., Ltd. as collateral in connection with an overdraft limit agreement amounting to ￦238,054 million with Woori Bank. As at December 31, 2015, the balance of related borrowings amounted to ￦237,054 million.

95


34. Assets pledged as collateral (cont’d)

(v) DEC has provided 24.76% of equity interests in Doosan Heavy Industry Vietnam Co., Ltd. and 20% of equity interests in DHI Vietnam Haipong Co., Ltd. as collateral in connection with an overdraft limit agreement amounting to ￦75,535 million with KDB. As at December 31, 2015, the balance of related borrowing amounted to ￦75,535 million.

(vi) DEC has provided a certain potion of property, plant and equipment in trust with NH Investment & Securities for the borrowings amounting to ￦30,000 million from DS Changwon the 1st Co., Ltd. As at December 31, 2015, the balance on the related trust asset amounted to ￦250,663 million.

34-2. As at December 31, 2015, assets pledged as collateral on behalf of others are summarized as follows (Korean won in millions):

Pledgor Collateralized

asset Carrying amount Pledgee Beneficiary

The Company

Long-term investments in securities ￦ 23,818

Kookmin Bank and others

Inchen-Kimpo express highway Co.,Ltd. and others

Inventories 21,440 CSOB Abener Energia S.A

DEC

Long-term investments in securities 80,302 KDB and

others

Sudokwon seobu express highway Co.,Ltd. and others

￦ 125,560

Some of investments in associates and joint ventures such as, Shinbundang Co., Ltd. stock and other (Book value: ￦32,659 million) have been provided as collateral for certain subsidiaries’ project financing to KDB and other, lenders of the project Financing.

96


35. Related party disclosures 35-1. The major related parties of the Group and nature of their relationship with the Group as at December 31, 2015 are as follows:

(1) As at December 31, 2015, the Group’s ultimate parent company is Doosan Corp. (equity ownership: 36.82%).

(2) As at December 31, 2015, the details of the Group’s associates and joint ventures, other related parties are as follows:

Relationship Related party Associates, joint ventures and others (*1) Tamra Offshore Wind Power Co., Ltd.

Dalian Samyoung Doosan Metal Product Co., Ltd. Kyunggi Railroad Co., Ltd. Shinbundang Railroad Co., Ltd. Neo Trans Co., Ltd. New Seoul Railway Corporation Haman Industrial Complex Company

Doosan PSI LLC Xuzhou Xugong Doosan Engine Co., Ltd. and others

Other related parties: Subsidiaries of controlling company Doosan Tower Co., Ltd.

Oricom Inc. Doosan DST Co.Ltd. Doosan Bears Inc. Doosan Advertising (Beijing) Co., Ltd. Doosan Feed & Livestock Co., Ltd. DIP Holdings Co., Ltd.

Doosan Electro-Materials Singapore Pte Ltd. Doosan Hongkong Ltd. Doosan Electro-Materials(Shen Zhen) Limited Doosan Shanghai Chemical Limited Doosan Electro-Materials (Changshu) Co., Ltd. Doosan Real Estate Securitization Specialty Ltd. Doosan Second Real Estate Securitization Specialty Ltd. Doosan Information and Communications America, LLC Doosan Information and Communications China Co., Ltd. Doosan Mottrol (Jiangyin) Co., Ltd. Doosan Information and Communications Europe Ltd. Doosan Electro-Materials America, LLC Doosan Industrial Vehicle Europe N.A. Doosan Industrial Vehicle U.K. Ltd. Doosan Logistics Europe GmbH Doosan Industrial Vehicle America Corp. Doosan Industrial Vehicle Yantai Co., Ltd. Doosan Electro-Materials Luxembourg Sarl Doosan Fuel Cell America, Inc. Circuit Foil Luxembourg Sarl and others

Associates and joint ventures of

controlling company (*2)

Guang Dong Xingpu Steel Center

Doosan EcoBizNet Co., Ltd. Presto Lite Asia Co., Ltd. Sichuan Kelun-Doosan Biotechnology Company Limited

Others Doosan Power Systems Pension Scheme Doosan Credit Union Yonkang Foundation

97


35. Related party disclosures (cont’d)

Relationship Related party Others Chung-Ang University

Dongdaemun Future Foundation Neoplux Co., Ltd.

(*1) Doosan do BPL and Doosan Capital Co., Ltd. was excluded resulting from liquidation and disposal, respectively, and the nature of relationship with Doosan (China) Financial Leasing Corp was changed from an associate to a subsidiary.

(*2) MVP Venture Capital 13rd was liquidated during the current year.

35-2. Significant transactions with related parties for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015

Sales and others Purchases and others

Sales

Disposal of property,

equipment and intangible

assets Other

revenue Purchases

Acquisition of property,

equipment and intangible assets Other expenses

Parent: Doosan Corp. ￦ 45,369 ￦ 16,566 ￦ 1,267 ￦ 112,783 ￦ 135,947 ￦ 150,043

Associates and joint ventures: Kyunggi Railroad Co., Ltd. 81,243 - - 1 - -

Tamra Offshore Wind Power Co., Ltd.

63,443

-

-

2

-

-

Others 174 - 3,116 960 - 61 144,860 - 3,116 963 - 61

Other related parties: Doosan Tower Co., Ltd. 36,303 - - 701 - 9,984

Oricom Inc. 1,336 487 24 284 - 18,230 Doosan DST Co., Ltd. 5,681 - 55 - - -

Doosan Bears Inc. - - - 4 - 18,607

Doosan Information and Communic-ations America LLC

-

-

69

-

-

33,588 Doosan Information and communications China Co., Ltd.

-

-

-

-

-

9,095 Doosan Information and Communications Europe Ltd.

-

-

-

-

-

28,179 Chung-Ang University 45,841 - - 1,121 40 14,130 Others 1,363 - 271 370 - 1,293

90,524 487 419 2,480 40 133,106

￦

280,753 ￦ 17,053 ￦ 4,802 ￦ 116,226 ￦

135,987 ￦ 283,210

98



2014

Sales and others Purchases and others

Sales

Disposal of property,

equipment and intangible

assets Other

revenue Purchases

Acquisition of property,

equipments and intangible assets Other expenses

Parent: Doosan Corp. ￦ 46,032 ￦ 1,640 ￦ 1,334 ￦ 160,516 ￦ 16,333 ￦ 160,605

Associates and joint ventures:

Doosan (China) Financial Leasing Corp.

-

-

4,382

-

-

-Kyunggi Railroad Co., Ltd. 94,004 - - 19 - -

Others 252 - 3 559 - - 94,256 - 4,385 578 - -

Other related parties: Doosan Tower Co., Ltd. 40,103 - 1 761 - 10,409

Oricom Inc. 1,090 123 19 790 - 16,866 Doosan DST Co., Ltd. 6,722 - 97 - - -

Doosan Bears Inc. 23,161 - - - - 17,515

Chung-Ang University 32,285 - - 993 - 13,547

Doosan Advertising (Beijing) Co., Ltd.

-

-

-

-

-

3,916

Doosan Information and Communications America LLC

-

-

-

-

-

35,077 Doosan Information and Communications China Co., Ltd.

-

-

-

-

-

9,446 Doosan Information and Communications Europe Ltd.

-

-

-

-

-

10,780 Others 1,726 - 824 1,913 - 4,092

105,087 123 941 4,457 - 121,648 ￦ 245,375 ￦ 1,763 ￦ 6,660 ￦ 165,551 ￦ 16,333 ￦ 282,253

99



35-3. The outstanding receivables and payables arising from the transactions with related parties as at December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 Receivables Payables

Accounts receivable

Other receivables

Loans receivable

Accounts payable

Other payables

Parent: Doosan Corp. ￦ 4,498 ￦ 3,017 ￦ - ￦ 23,055 ￦ 121,518

Associates and joint ventures: Kyunggi Railroad Co., Ltd. 101 269 26,000 1 -

Shinbundang Railroad Co., Ltd. 11,023 - 15,858 10 -

Tamra Offshore Wind Power Co., Ltd. 63,126 - - - 12,795

Haman Industrial Complex Company

5,523

5,929

-

-

-

Others 75 - 560 133 79 79,848 6,198 42,418 144 12,874

Other related parties:

Doosan Tower Co., Ltd. 31,640 5,206 - 14 613

Oricom Inc. 784 232 - 9,337 4,859 Doosan Information and Communicatios Europe Ltd.

-

-

-

-

8,175

Others 1,120 2,383 - 72 3,462 33,544 7,821 - 9,423 17,109

￦ 117,890 ￦ 17,036 ￦ 42,418 ￦ 32,622 ￦ 151,501

100


35. Related party disclosures (cont’d) 2014

Receivables Payables Accounts receivable

Other receivables

Loans receivable

Accounts payable

Other payables

Parent: Doosan Corp. ￦ 9,741 ￦ 1,614 ￦ - ￦ 31,072 ￦ 50,393

Associates and joint ventures: Kyunggi Railroad Co., Ltd. 1,550 9 12,300 6 -

Shinbundang Railroad Co., Ltd.

11,023

-

9,858

-

-

Haman Industrial Complex Company

11,823

5,921

-

-

-

Others - 395 1,750 104 225 24,396 6,325 23,908 110 225

Other related parties: Doosan Tower Co., Ltd. - 7,507 - 16 416

Oricom Inc. 925 10 - 5,974 6,017 Others 2,563 572 - 192 7,441

3,488 8,089 - 6,182 13,874 ￦ 37,625 ￦ 16,028 ￦ 23,908 ￦ 37,364 ￦ 64,492

35-4. Financial transactions (including investment) with related parties for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 Loans Borrowings Investments Dividends

Increase Decrease Increase DecreaseCapital

increase Investment Income DistributionParent:

Doosan Corp. ￦ - ￦ - ￦ - ￦ - ￦ - ￦ - ￦ - ￦ 32,959

Associates and joint ventures:

Doosan PSI LLC - - - - - 1,108 - -


105,926

-

-

-

-

-

-

-Kyunggi Railroad Co., Ltd. 13,700 - - - - - - -

New Seoul Railway Corporati-on

206

-

-

-

-

-

-

-

Shinbun -dang Railroad Co., Ltd.

6,000

-

-

-

-

-

-

-

125,832 - - - - 1,108 - -Other related parties:

Doosan Power Systems Pension Scheme

-

-

-

-

25,000

-

-

-￦ 125,832 ￦ - ￦ - ￦ - ￦ 25,000 ￦ 1,108 ￦ - ￦ 32,959

101



2014 Loans Borrowings Investments Dividends

Increase Decrease Increase Decrease Capital increase Investment Income PaymentParent:

Doosan Corp. ￦ - ￦ - ￦ - ￦ - ￦ - ￦ - ￦ - ￦ 32,959 Associates and joint ventures:


1,396

-

-

-

-

-

-

-Doosan do BPL - 261 - - - - - -Kyunggi

Railroad Co., Ltd. 12,300 - - - - 18 - -

New Seou Railway

Corporation 354 - - - - 250 - -Shinbundang

Railroad Co., Ltd. 9,858 - - - - - -

Hanjung Power Ltd. - - - - - - 1,494 -

23,908 261 - - - 268 1,494 -￦ 23,908 ￦ 261 ￦ - ￦ - ￦ - ￦ 268 ￦ 1,494 ￦ 32,959

35-5. The Group provides payment guarantees and collateral to certain related parties as at December 31, 2015 (See Notes 33 and 34).

35-6. Key management personnel are standing directors who have authorities and responsibilities for planning, operation and control of the business of the Group. Compensation for key management personnel for the years ended December 31, 2015 and 2014 consists of following (Korean won in millions):

2015 2014 Short-term employee benefits ￦ 86,059 ￦ 98,636 Severance and retirement benefits 9,715 8,009 Share-based payment 1,493 5,016

￦ 97,267 ￦ 111,661

102


36. Supplementary cash flow information 36-1. Details of non-cash and working capital adjustments to reconcile profit for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Loss for the period ￦ (1,750,899) ￦ (85,475)Adjustments: Interest expenses 630,155 640,218 Loss on foreign currency translation 311,102 104,802 Bad debt expenses 321,752 112,727 Other bad debt expenses 284,535 61,996 Loss on valuation of inventory 28,607 24,323 Impairment loss on available-for-sale financial assets 708 7,285 Loss on valuation of derivative financial instruments 318,405 282,149 Loss on valuation of firm commitments 89,306 76,866 Loss on equity method investments 81,659 79,859 Depreciation 371,355 387,654 Amortization 214,125 182,877 Loss on disposal of property, plant and equipment 9,301 8,094 Loss on disposal of trade receivables 13,935 23,440 Impairment loss on property, plant and equipment 129,915 8,691 Impairment loss on intangible assets 196,904 13,103 Impairment loss on non-current

assets classified as held-for-sale 71,811 -Severance and retirement benefit 148,379 192,550 Share-based payments 985 2,681 Provision for construction warranties 28,230 21,637 Financial guarantee expenses 21,807 102,961 Loss on redemption of debentures 350 38,140 Income tax expense (benefit) 167,893 (100,636)Interest income (45,199) (55,685)Dividend income (1,646) (537)Gain on foreign currency translation (126,522) (78,723)Gain on valuation of derivative financial instruments (142,608) (92,725)Gain on valuation of firm commitments (297,431) (170,310)Gain on disposal of property, plant and equipment (6,522) (4,418)Gain on disposal of intangible assets (625) (176)Loss (gain) on disposal of non-current assets classified as held-for-sale 338 (45,090)Gain on disposal of other non-current assets (29,718) -Others 5,522 6,749

2,796,808 1,830,502Working capital adjustments: Trade receivables ￦ (41,587) ￦ 123,433 Due from customers for contract work 10,505 283,675 Other receivables (10,674) (41,575) Derivative financial instruments (79,397) 95,399 Firm commitment instruments 106,759 (148,924)

Inventories (140,137) (184,942) Other current assets 40,187 (111,001) Other non-current assets 18,335 (1,790) Trade payables (411,979) 450,391 Due to customers for contract work 85,848 (554,249) Other payables 235,907 34,730 Reserve for construction warranties 41,707 (65,355) Reserve for other warranties 882 (1,015)Other current liabilities (74,465) (4,066)

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36. Supplementary cash flow information (cont’d)

2015 2014 Other non-current liabilities (7,498) (15,972)

Severance payments paid (258,239) (136,660) Plan assets 2,748 (74,900) Others 1,130 6,908

(479,968) (345,913)Cash generated from operating activities ￦ 565,941 ￦ 1,399,114

36-2. Significant transactions not involving cash flows for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

2015 2014 Acquisition of property, plant and equipment ￦ 60,216 ￦ 4,593 Transfer from property, plant and equipment to another account 74,964 -Transfer from Investment property to another account 37,629 105 Transfer from construction-in-progress to another account 225,321 206,765

Reclassification between short-term and long-term financial instruments 50,417 -Reclassification between short-term and long-term loans 306,392 938 Transfer to current portion of

debentures and borrowings 1,188,084 1,504,306 Transfer to current portion of asset-backed loan 42,850 18,650

37. Non-current assets classified as held-for-sale As at December 31, 2015 the non-current assets classified as held-for-sales are as follows (Korean won in millions):

Amount Address

Land (*1) ￦ 75,870 161, Jeongja-dong Bundang-gu, Seongnam-Si, Gyunggido, Korea and others.

Investment property (*1) 21,000

Buildings and structures 12,101 Machinery and

equipment 10,249

￦ 119,220

(*1) Some of the non-current assets classified as held-for-sale are pledged as collateral for the borrowings of the Group.

The Group measured the fair value of the assets held for sales, based on the market approach reflecting the recent sales price of an asset similar to an asset on a third party’s letter of intent. The difference of ￦71,811 million between the fair value and book value of assets held for distribution was recognized as an impairment loss.

104


37. Non-current assets classified as held-for-sale (cont’d)

The valuation method, and significant and unobservable input variables used in valuation of non-current assets classified as held-for-sale are as follows:

Valuation method Significant, unobservable

input variable Impact of unobservable input variable on

fair value measurement Trading example comparison method: Property, plant and equipment were valued

by identifying the same or similar transactions and making adjustments and comparing geographical locations and individual factors. Machinery was valued by considering characteristics of machinery and market trend. If a similar transaction was not available, consumer group and useful life were considered in estimating resale value.

Adjustment of viewpoint (rate of change in price of the land and price trend)

If rate of change in price of the land and price trend goes up (down), fair value goes down (up)

Individual factors (condition and

characteristic of a lot)

If correction value of condit ion and characteristic of a lot goes up(down), fair value goes down (up)

Other factors (price of land and

consumer layer, etc)

If correction value of price of land and consumer layer goes up (down), fair value goes up (down)

38. Discontinued operations

38-1. General

DEC, a subsidiary, disposed of the plant in Incheon and 4 other plants under the Rexcon business unit during the current year and classified the unit as a discontinued operation. The unit used to engage in production and distribution of ready-mixed concrete under the Construction division. DEC has also decided to discontinue its OSS (Offshore Structure and Subsea) business under its Mecatec division. The OSS unit used to engage in manufacturing of offshore and subsea structures and equipment. Due to the discontinued operations under DEC, the consolidated financial statement of income for the year ended December 31, 2014, presented for comparative purposes, was restated.

38-2. The major classes of assets and liabilities of DEC’s Rexcon business unit classified as a discontinued operation as at December 31, 2015 are as follows (Korean won in millions):

Amount <Asset> Trade receivables ￦ 14,783 Property, plant and equipment 138,233 Other assets 1,103

154,119 <Liabilities> Trade payables 6,258 Other payables 3,055

9,313 Net asset ￦ 144,806

105


38. Discontinued operations (cont’d) 38-3. The results of DEC discontinued operations for the years ended December 31, 2015 and 2014 are presented below (Korean won in millions):

2015 OSS Rexcon Total

Sales (*1) ￦ 976 ￦ 56,228 ￦ 57,204 Cost of goods (*1) 3,249 53,175 56,424 Gross profit (loss) (2,273) 3,053 780 Selling and administrative cost 1,489 3,480 4,969 Operating loss (3,762) (427) (4,189)Finance income (costs) (783) (15) (798)Other non-operating income (expense) (1,961) (5,899) (7,860)Loss before tax from discontinued operations (6,506) (6,341) (12,847)Loss on disposal of discontinued operations - 12,296 12,296 Loss for the year from discontinued operations ￦ (6,506) ￦ (18,637) ￦ (25,143)

(*1) Sales and cost of goods include inter-segment transactions.


Sales (*1) ￦ 34,581 ￦ 136,456 ￦ 171,037 Cost of goods (*2) 32,407 124,578 156,985 Gross profit (loss) 2,174 11,878 14,052 Selling and administrative cost 1,963 1,958 3,921 Operating profit 211 9,920 10,131 Finance income (costs) (288) (266) (554)Other non-operating income (expense) (1,360) 10,732 9,372 Profit (loss) before tax from discontinued operations

(1,437) 20,386 18,949

Loss on disposals of discontinued operations - - -Income tax expenses (income)

related to discontinued operating (316) 4,485 4,169 Profit (loss) for the year from discontinued

operations

￦ (1,121) ￦ 15,901 ￦ 14,780

(*1) Sales and cost of goods include internal transactions

38-4. The net cash flows incurred by DEC discontinued operations are as follows (Korean won in millions):


Net cash flows used in operating activities

￦ (7,862) ￦ (24,400) ￦ (32,262)Net cash flow provided by investing activities

3 127,997 128,000 Net cash flows provided by (used in) financing activities (*1)

5,699 (103,597) (97,898)Net foreign exchange difference 139 - 139 Net cash flow ￦ (2,021) ￦ - ￦ (2,021)

(*1) Borrowings and repayment arising from inter-segment treasury transactions.

106


38. Discontinued operations (cont’d)


Net cash flows used in operating activities ￦ (7,908) ￦ (334) ￦ (8,242)Net cash flow provided by (used in) investing activities

713 (19,659) (18,946)

Net cash flows provided by financing activities (*1)

7,308 19,972 27,280

Net foreign exchange difference 20 - 20 Net cash flow ￦ 133 ￦ (21) ￦ 112

(*1) Borrowings and repayment arising from inter-segment treasury transactions.

39. Business combinations Business combinations occurred in 2015 is as follows (CNY in thousands):

Subsidiary Operating

activity Effective date Acquisition

interest Purchase

consideration Doosan China Financial Leasing Corp. Finance July 17, 2015 100% CNY 901,961

Doosan China Financial Leasing Corp. was acquired by Doosan Infracore (China) Investment Co., Ltd., a subsidiary, and Doosan Infracore China Co., Ltd., a subsidiary, to develop competitive financial instruments that will support the Group’s business activities in the Chinese market and manage systematically control risks associated with business activities.

Purchase consideration arising from the business combinations are as follows (CNY in thousands):

Amount Cash and cash equivalent CNY 460,000 Consideration paid to existing shareholders, at fair value 441,961

CNY 901,961

Fair value of the identifiable assets and liabilities arising from the business combinations are as follows (Korean won in millions):

Amount Fair value of identifiable assets:

Current assets ￦ 574,766 Non-current assets 122,065

696,831Fair value of identifiable liabilities:

Current liabilities 47,488 Non-current liabilities 483,450

530,938Fair value of identifiable net assets ￦ 165,893

107


39. Business combinations (cont’d) Net cash flows arising from the business combinations are as follows (Korean won in millions):

Amount Cash paid ￦ 83,301 Less: Cash and cash equivalents prior to the business combination (28,361)

￦ 54,940

40. Events after the reporting period

DI, a subsidiary, approved to sell its Machine Tools business segment accompanying management right at the Board of Directors’ meeting on March 2, 2016. From the sale of the business segment, Doosan Infracore Co., Ltd. expects to establish appropriate decision making procedures of each business segment, improve competitiveness, and increase revenue and profits by allocating management resources efficiently. Doosan Infracore Co., Ltd. entered into a sales contract on March 2, 2016, and expects that the business transfer will be completed until April 2016.

DEC, a subsidiary decided to reduce its capital as a result of changing the par value of share to utilize assets more efficiently and increase shareholders’ value in accordance with a resolution of the Board of Directors on March 2, 2016. The amount of capital to be reduced can be changed according to a resolution of the shareholder’s meeting or the number of shares converted from convertible bond in 2016.

Par value Capital Number of issued stocks

Capital to reduce Before After Before After Before After

Effective date of capital

reduction ordinary stock and class stock of DEC, a subsidiary ￦ 5,000 ￦ 500 ￦

420,689 Million ￦

51,069 Million

59,385,470 Shares 59,385,470

Shares Apr.26, 2016

41. Approval of the financial statements

The consolidated financial statements of the Group for the year ended December 31, 2015 were approved by the Company’s Board of Directors at their meeting on February 4, 2016 and will be presented at the annual shareholders’ meeting on March 25, 2016.

108

Documents

Doosan Heavy Industries & Construction Co., Ltd. and …en).pdf · Doosan Heavy Industries & Construction Co., Ltd. and its subsidiaries Consolidated statements of comprehensive income